The Quick Read: An FHA cash-out refinance carries two insurance charges, and neither one is a fee on the cash you take out. Both are figured on the whole new loan. The upfront premium is 1.75% of the base loan and is usually rolled into the balance. The annual premium is a percentage of the balance, billed monthly. A bigger cash-out means a bigger loan, so both charges grow with it.
Key Takeaways
- The insurance is charged on the new loan, not on the cash released.
- The upfront premium is 1.75% of the base loan. It is usually financed, so it adds to your balance.
- The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV (loan-to-value, the loan as a percentage of the home’s value).
- A small cash-out carries a heavier insurance load per dollar of cash than a large one.
- Because the cash-out cap is 80% LTV, the annual premium on a thirty-year loan ends after eleven years.
What Are the Two Insurance Charges?
Every FHA loan carries two premiums. Both protect the lender, not you. They pay the lender if the loan goes bad. You still pay for them.
The upfront premium is a one-time charge, 1.75% of the base loan. Most borrowers finance it, which means it gets added to the loan balance instead of paid in cash at the table.
The annual premium is a yearly charge, set as a percentage of the balance and collected in monthly installments with your mortgage payment. Across the wholesale programs Lendmire places FHA files with, it falls between 0.15% and 0.75%. Where it lands depends on the loan term, the loan amount and the LTV.
Neither charge looks at how much cash you pull out. The insurer sees one number: the size of the loan. That is the whole mechanism, and everything below follows from it.
Key Terms Defined
Base loan amount: the mortgage amount before any financed upfront premium is added. The 80% LTV test is applied to this number. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Upfront premium (UFMIP): the one-time 1.75% charge on the base loan, usually rolled into the balance.
Annual premium (MIP): the yearly insurance charge on the loan balance, collected monthly.
Adjusted value: the value the lender uses for the LTV test. On a home you have owned for at least 12 months, it is the appraised value.
Cash-out refinance: a refinance where the new loan pays off the old one and also puts cash in your hands.
How Is an FHA Cash-Out Built, Step by Step?
Start with the order of operations. It explains why the insurance behaves the way it does.
Step one: eligibility. The FHA cash-out program is for a home you have owned and lived in as your main residence for the 12 months before the case number is assigned. Occupancy decides the leverage. A rental or second home does not fit this program. For details on the loan itself, see Lendmire’s FHA cash-out refinance program page.
Step two: the appraisal. The appraisal sets the value. The cash-out ceiling is 80% of it, so the appraisal drives how much cash is possible at all.
Step three: the base loan. The base loan is your payoff of existing liens, plus the cash you receive, plus allowed costs. It must stay at or below 80% of the adjusted value. County loan limits apply too, and they change every year.
Step four: the upfront premium goes on top. The 1.75% is figured on the base loan, then added. HUD’s handbook glossary defines the base loan amount as the figure before any financed premium. So your final note is larger than the 80% figure suggests.
Step five: the annual premium is set. It is fixed at endorsement based on term, LTV and loan size, then billed monthly. HUD’s FHA Q&A confirms that the upfront premium applies to both purchase and refinance loans, and that the annual premium comes with the monthly payment.
Step six: disclosure. Mortgage insurance shows up on your Loan Estimate and Closing Disclosure. Read both. They show how the premium was applied to your specific loan.
What Does the Insurance Look Like Against the Cash?
Here is the comparison the title asks about. These are modeled assumptions, not market data. Say the home is valued at 100% and the payoff of your current loan is 50% of that value. Closing costs are left out to keep the picture clean. No dollar amounts appear, because the pattern is the point.
| Base loan (% of value) | Cash before costs (% of value) | Upfront premium (% of value) | Premium as share of cash |
|---|---|---|---|
| 60% | 10% | 1.05% | 10.5% |
| 70% | 20% | 1.225% | 6.1% |
| 80% | 30% | 1.40% | 4.7% |
Here is how to read the table. The upfront premium is 1.75% of the base loan. On a 60% base loan, that is 1.05% of the home’s value. Against 10% in cash, it eats about a tenth.
At the 80% ceiling, the premium is bigger in absolute terms but smaller against the cash. It is about 4.7% of the cash released.
This works in your favor in one way and against you in another. A larger cash-out spreads the upfront premium over more cash. But a larger loan also carries more annual premium for longer. Both charges rise with the base loan.
The financed premium also sits outside the 80% test. On the 80% row, the final note is about 81.4% of value (80% plus 1.4%). The financing of the premium does not shrink your cash. It just raises the balance you owe.
Now the part most worksheets skip. Your cash is smaller than the headroom under the cap. Payoffs, closing costs and the premiums all come out of that same headroom. The cap is a ceiling, not the check you receive.
Is the Upfront Premium Financed or Paid in Cash?
Most borrowers finance it. Financing leaves more cash in your pocket at closing, but it adds to the debt, and the annual premium is then charged on a larger balance.
Paying it in cash does the reverse. It keeps the balance lower but raises the cash needed to close. On a cash-out, that cash is coming out of the same proceeds you are trying to receive, which is why financing is the common path. Ask your loan officer to show both versions on the Loan Estimate. The comparison is quick to read once it is on paper.
How Long Does the Annual Premium Last?
On a thirty-year loan, the length depends on LTV at origination. Above 90% LTV, the annual premium lasts for the whole term. At or below 90%, it ends after eleven years. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
An FHA cash-out tops out at 80% LTV, so it falls in the shorter group. HUD cut the cash-out cap from 85% to 80% in 2019. That is why older articles quoting 85% are stale. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Eleven years is still a long time. Think about how long you plan to keep the loan. If you expect to refinance or sell sooner, you will pay the annual premium for fewer years. The only way to end it early is to refinance out of FHA into another loan type, which depends on your equity and credit at that point.
Where Does the General Rule Break?
The core rule: both premiums are figured on the whole loan. These cases bend around it.
Inherited homes. A home you inherited may not need the full 12-month wait before a cash-out. The catch is how it was used after you inherited it. If it was treated as a rental, occupancy rules apply.
Free-and-clear homes. A home with no mortgage can still be refinanced for cash. The premium math is the same. The base loan is just the cash and allowed costs, with no payoff in the mix.
Payment history and forbearance. Lenders review your payment record on the current loan. A past forbearance plan gets extra attention. These are HUD rules plus lender overlays, so the exact requirements vary by lender.
Streamline refinances. The FHA Streamline is a different loan. It refinances an existing FHA loan with no appraisal and a limited credit review. It does not release cash. The premium continues. HUD’s Mortgagee Letter 2023-05 carves out a special low-premium case for Streamlines of loans endorsed on or before May 31, 2009. A cash-out does not get that treatment.
Refinancing out of a recent FHA loan. Some FHA-to-FHA refinances may bring a partial credit toward the new upfront premium. A credit is not cash. Whether a cash-out qualifies depends on the current handbook, so ask your loan officer directly.
Loans with no premiums. Reverse mortgages (HECM), Title I, Section 247 and Section 248 loans do not carry these premiums, according to HUD’s FHA Q&A. They are a different set of products, not a way around the cost.
Common Misconceptions
“The insurance is charged only on the cash I take out.” No. It is figured on the whole base loan.
“I can borrow 80% plus the premium.” The 80% test applies to the base loan. The financed premium is added on top of it. Confirm with your lender how the final amount is computed.
“FHA still allows 85% cash-out.” That ended with the 2019 change. Old pages still show it. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
“FHA insurance is the same as PMI.” They are not the same. FHA premiums go to the FHA. Conventional private mortgage insurance (PMI) is private. The Consumer Financial Protection Bureau explains that FHA mortgage insurance costs the same regardless of credit score, while PMI is generally cheaper for borrowers with good credit.
“The insurance protects me.” It protects the lender.
“Twenty percent equity guarantees a cash-out.” It does not. Occupancy, payment history, credit, income, appraisal and costs all matter.
“The numbers I saw online are current.” Many pages still show annual premium figures from before 2023. That year HUD cut the annual premium by 30 basis points for new endorsements, and the upfront premium did not change. Treat any page without a clear source as suspect.
Is the Insurance Worth It? A Decision Guide
Insurance is one cost among several. Weigh it against what the cash does for you.
| Question | Why it matters |
|---|---|
| How long will you keep the loan? | The annual premium runs up to eleven years at this LTV |
| How much cash do you need? | A small cash-out carries more insurance per dollar of cash |
| What is your credit like? | FHA insurance does not drop with a high score; PMI often does |
| Is your equity strong? | More equity may open conventional options with different insurance rules |
| Is the cash replacing worse debt? | Paying off costlier debt can justify the premium |
Honest read: if you have strong credit and plenty of equity, a conventional cash-out may carry less insurance. If your credit is thinner, FHA can be the program that works. FHA is built for that gap.
A practical pattern across FHA cash-out files: borrowers ask for the most cash the cap allows, then discover that the premiums and costs trim the check. Ask for a side-by-side showing the cash you would receive at two or three loan sizes. The smaller option sometimes gives you nearly the same net cash with less debt.
Frequently Asked Questions
Is the insurance calculated on the cash I take out or the whole loan?
The whole loan. The upfront premium is 1.75% of the base loan, and the annual premium is a percentage of the balance. Taking out more cash raises the loan, which raises both charges.
Can I pay the upfront premium in cash instead of financing it?
It is generally treated as all financed or all paid in cash, not split. Paying cash increases what you bring to closing. Financing adds to your balance. Ask your loan officer to show both on the Loan Estimate.
How long do I pay the annual premium?
On a thirty-year loan at or below 90% LTV, it ends after eleven years. A cash-out is capped at 80% LTV, so it falls in that group. Refinancing out of FHA is the other way to end it, depending on your equity and credit then. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Does a higher credit score lower my FHA insurance?
Not meaningfully. FHA mortgage insurance costs the same regardless of credit score, per the CFPB, with only slight variation for other factors. Conventional PMI is where a strong score tends to pay off.
Can I do an FHA cash-out on a rental or second home?
No. The program is for your principal residence, owned and occupied for 12 months before the case number is assigned. Occupancy decides the leverage. All figures here are subject to lender guidelines and full file review, and nothing is a commitment to lend.
Weighing Your Next Step
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Ask for the cash-out shown at more than one loan size. That one comparison tells you most of what the insurance will cost you against the cash you receive.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Handbook 4000.1 Glossary
2. HUD FHA Q&A: Mortgage Insurance Premium structure
3. HUD Mortgagee Letter 2019-11
4. HUD Mortgagee Letter 2023-05
5. CFPB: What is mortgage insurance and how does it work?
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much the Annual MIP Adds to an FHA Cash-Out Payment Over Time · How Much Equity an FHA Borrower Needs for a Conventional Cash-Out · How a Low Appraisal Limits an FHA Cash-Out at the Cap
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.