The Quick Read: A cash-out refinance on an FHA loan costs you two mortgage insurance premiums. The first is an upfront premium of 1.75% of the base loan, usually financed into the balance. The second is an annual premium, billed monthly, that runs from 0.15% to 0.75% of the balance depending on term, loan amount and LTV. Because a cash-out is capped at 80% LTV, the annual premium ends after eleven years on a standard thirty-year loan. All of this is subject to lender guidelines and full file review.
Key Takeaways
- You pay the upfront premium once. Most borrowers roll it into the loan.
- You pay the annual premium monthly for up to eleven years on a standard thirty-year cash-out.
- Growing equity does not shorten that clock.
- A new cash-out starts a new loan and a new eleven-year clock.
- Leaving FHA early means you have already paid the upfront premium, and it does not come back as cash.
What Does an FHA Cash-Out Actually Cost in MIP?
The total is one upfront premium plus the annual premium for each year you stay. Mortgage insurance premium, or MIP, is the fee that protects the lender if you default. It is charged on every FHA loan, and your credit score does not change it.
A cash-out refinance replaces your current mortgage with a bigger one. You keep the difference as cash. Across the wholesale programs Lendmire places FHA files with, the FHA cash-out refinance program reaches 80% of the home’s appraised value. The home must be your primary residence, owned and occupied for 12 months before the case number is assigned. The 580 decision score that opens the purchase program applies here too, though some lenders set a higher floor.
Here is the pattern that matters: the premium is not a single number. It is two charges that behave differently.
| Feature | Upfront premium | Annual premium |
|---|---|---|
| Size | 1.75% of the base loan | 0.15%–0.75% of the balance |
| When you pay | Once, at closing | Monthly, built into the payment |
| Can you finance it? | Yes, usually rolled in | Not applicable |
| What sets it | Fixed percentage | Term, loan amount, LTV |
| How long | One time | Eleven years or the full term |
The Consumer Financial Protection Bureau describes the same split: an upfront cost paid with closing costs and a monthly cost in the payment. It adds that you can roll the upfront fee into the mortgage.
How Is the Upfront Premium Figured?
It is 1.75% of the base loan. The base loan is the amount you are borrowing before the premium itself is added. If you finance the premium, the final balance lands slightly above the base.
Picture a homeowner whose base loan is 80% of the home’s appraised value, the cap on an FHA cash-out refinance. The upfront premium is 1.75% of that base loan, which works out to 1.4% of the home’s value. Financing it nudges the balance a little higher. That is the whole calculation.
Financed or paid in cash, the percentage is the same. Financing just means you pay interest on it for the life of the loan.
Narrow exceptions exist. HUD’s premium tables in Appendix 1.0 exempt certain streamline refinances of older FHA loans and a program for Hawaiian Home Lands. A standard cash-out is not on that list.
How Is the Annual Premium Set, and How Long Does It Last?
Three things set it: the loan term, the loan amount and the starting LTV. A longer term, a larger loan or a higher LTV pushes the percentage up. A 15-year term uses a separate, lower table. Loans above HUD’s base-loan threshold carry a higher annual rate. That threshold is tied to the national conforming loan limit, so it moves. County loan limits apply to the loan itself, and a loan officer can confirm where your file sits.
Duration is the part people get wrong. On a thirty-year loan, it works like this:
| Starting LTV | Annual premium lasts |
|---|---|
| 90% or below | Eleven years |
| Above 90% | The full term |
HUD’s Appendix 1.0 lays out those tiers. The Congressional Research Service describes the same split. Eleven years at 90% or below. Longer above it.
Why a cash-out lands in the eleven-year tier
An FHA cash-out is capped at 80% LTV. That cap came from a change recorded in HUD’s Handbook 4000.1 transmittal. So a compliant cash-out starts below the 90% breakpoint. That puts it in the eleven-year tier. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
One caution. No single HUD page says “a cash-out lands in the eleven-year tier.” It is the practical result of two separate rules, the 80% cap and the 90% breakpoint. Treat it as sound reasoning, and have your loan officer confirm it against the current tables.
The test uses the starting balance
The 90% test looks at the base loan, not the financed premium. It also looks at the loan at the start. Equity you build later does not shorten the clock. A new appraisal after closing does not either.
Older FHA loans used different rules, with cancellation at a lower LTV after five years of payments. Those rules do not carry over. A cash-out creates a new loan with a new case number.
What Do You Pay Before You Leave?
You pay the upfront premium in full, plus one year of annual premium for each year you hold the loan, up to eleven. After that the annual premium stops.
The annual piece is simple arithmetic: the annual percentage, times the balance, times the years you stay. Because the balance shrinks as you pay down, each year’s charge trends lower.
Here is how the cost builds by exit point.
| If you leave after… | Upfront premium | Annual premium paid |
|---|---|---|
| A short stretch (1–3 years) | Paid in full, sunk | A few years’ worth |
| The middle (5–7 years) | Paid in full, sunk | About half the clock |
| Eleven years | Paid in full, sunk | The full eleven years |
| Past eleven years | Paid in full, sunk | Stops; no more premium |
The upfront premium is the cost you cannot spread out. Exit in year two and you paid all of it for two years of coverage. Exit in year ten and the same charge was spread over a long stretch. That is why early exits sting.
The monthly premium also scales with your balance. A bigger cash-out means a bigger balance, so a bigger premium base. Lendmire’s piece How Much the Annual MIP Adds to an FHA Cash-Out Payment Over Time walks through that effect.
Can You Get the Upfront Premium Back?
Rarely, and not as cash. A refund exists only as a credit toward the upfront premium on a new FHA loan. HUD’s FHA fact sheet says no refund is due on loans endorsed after December 2004 unless you refinance into a new FHA-insured loan. It also says none is due after the third year.
| Your path | Upfront premium credit? |
|---|---|
| FHA to FHA, within three years | Yes, applied to the new premium |
| FHA to FHA, after three years | No |
| FHA to conventional | No |
| Conventional to FHA cash-out | No credit; full 1.75% applies |
The credit reduces the new premium. It is not paid to you. The handbook’s monthly credit table sets the percentages, so ask your loan officer to pull it rather than guessing.
Where the General Rule Breaks
Most files follow the pattern above. A few do not.
- Loans above the base threshold. A higher annual rate applies, and that threshold moves with the conforming limit.
- Shorter terms. A 15-year loan uses its own, lower annual table.
- Special programs. Hawaiian Home Lands loans require no annual premium. Indian Lands loans do not require the upfront premium.
- Older loans. If you hold an old FHA loan above 90% LTV, you may be paying premium for the full term. A compliant cash-out can move you into the eleven-year tier. That is a real upside, though you give up the progress on your old clock.
- Streamline instead of cash-out. The FHA Streamline refinances an existing FHA loan with no appraisal, limited credit review and a net tangible benefit. It brings no cash, and the premium continues.
- Second homes and rentals. Standard FHA cash-out covers a primary residence only. Occupancy decides the leverage, so other property types need a different program.
One more thing: rules change. HUD has issued recent policy updates on regulatory burden and appraisals, and the ones reported to date do not change the upfront premium, the annual premium or the 80% cash-out cap, per Consumer Finance Monitor. Confirm the current tables before you decide. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
How Does the Decision Look in Practice?
Think of it as a break-even test with your own numbers. Three steps.
1. Price the premium you will pay. Upfront premium plus the annual premium for the years you expect to hold the loan.
2. Price the alternative. Ask what a conventional loan would cost in closing costs and private mortgage insurance. The CFPB says private mortgage insurance is generally cheaper than FHA for borrowers with good credit, and it can be cancelled under certain circumstances.
3. Compare the exit. Leaving FHA means new closing costs. No upfront premium credit offsets them, since the credit only exists for FHA-to-FHA moves.
Say you plan to stay put for the long haul and your credit is modest. Waiting out the eleven years can work, because the premium ends on its own. Say instead you have strong credit and a lot of equity. Then a conventional refinance later may remove mortgage insurance sooner than the FHA clock would. This one is a genuine toss-up on many files, and it turns on how long you stay and what your credit looks like.
Ratios matter too. The base pair is 31/43 with no compensating factors, and documented factors can reach 40/50 at the top tier. The automated finding governs most files. A bigger cash-out balance raises your payment, which raises your ratios.
Practitioner note: on the files we see across wholesale FHA programs, the question that trips borrowers up is the clock, not the percentage. Many assume equity cancels the premium the way it does with private mortgage insurance. It does not on a newer FHA loan.
Key Terms Defined
- MIP (mortgage insurance premium): The fee on an FHA loan that protects the lender if you default.
- UFMIP (upfront premium): The one-time 1.75% charge, usually financed into the loan.
- Annual MIP: The yearly premium, billed in monthly pieces and built into your payment.
- Base loan: The loan amount before the financed upfront premium is added.
- LTV (loan-to-value): Your loan balance divided by your home’s appraised value.
- Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference in cash.
- Streamline refinance: An FHA-to-FHA refinance with no appraisal and no cash-out.
Which Way to Lean
Stay if your time horizon is long, your credit is average and the monthly payment fits your ratios. Leave if you can qualify for a conventional loan with enough equity that the mortgage insurance there costs less than what you have left on the FHA clock. Either way, count the sunk upfront premium before you move.
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.
Frequently Asked Questions
Does an FHA cash-out reset the MIP clock?
Yes. A cash-out creates a new loan with a new case number, so the eleven-year annual premium period starts over. If your old loan was above 90% LTV and ran for the full term, a compliant cash-out may move you into the shorter tier instead. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Will 20% equity remove FHA mortgage insurance?
Not on a newer FHA loan. Equity does not cancel the premium early. It ends after eleven years if you started at or below 90% LTV, or at the end of the term if you started above that. Refinancing into a conventional loan is the usual way to drop it sooner. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Is the upfront premium refundable if I leave FHA?
No cash comes back. A credit toward a new FHA upfront premium exists only for FHA-to-FHA refinances within three years. Moving to a conventional loan earns no credit.
Can I finance the upfront premium?
Yes, in most cases. Financing raises your balance slightly. Paying in cash avoids that, but the percentage stays the same either way.
Does FHA cash-out work on a second home or rental?
No. Standard FHA cash-out is limited to your primary residence, owned and occupied for 12 months. Other property types need a different program.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB, What is mortgage insurance and how does it work?
2. HUD Mortgagee Letter with Appendix 1.0 premium tables
3. Congressional Research Service, FHA-Insured Home Loans: An Overview
4. HUD Handbook 4000.1 transmittal
5. HUD FHA Homeowners Fact Sheet
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 to Plan Your Exit From MIP After an FHA Cash-Out · How Much FHA Cash-Out Insurance Costs Versus Conventional by Equity · How Much Equity an FHA Borrower Needs for a Conventional Cash-Out
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.