The Quick Read: An FHA cash-out on a loan that is already FHA adds a full new set of mortgage insurance, because the old loan is paid off and replaced by a new FHA loan. That means a new upfront premium of 1.75% of the base loan, usually financed, plus a new annual premium of 0.15% to 0.75% of the balance. Both are figured on the whole new loan, not just the cash you walk away with.
What Two Insurance Charges Does a New FHA Loan Carry?
Every FHA loan carries two charges: a one-time upfront premium and a recurring annual premium. A cash-out refinance is a brand-new FHA loan, so both start fresh. Nothing from the old loan’s insurance carries over, apart from a possible credit toward the new upfront charge.
Across the wholesale programs Lendmire places FHA files with, the upfront premium is 1.75% of the base loan. The base loan is the loan amount before that premium is added. Most borrowers finance it into the balance, so it does not show up as cash due at closing.
The annual premium is billed in monthly pieces. It lands between 0.15% and 0.75% of the balance, depending on the loan term, the loan amount and the loan-to-value ratio (LTV). HUD Mortgagee Letter 2023-05 confirms the 1.75% upfront figure for all mortgages and shows that the annual premium was cut for loans endorsed from March 20, 2023. That letter has since been folded into HUD’s Handbook 4000.1, so the Handbook governs current policy.
Neither charge is a price you negotiate. Both are program facts set by HUD.
Key Terms Defined
Upfront premium: The one-time FHA mortgage insurance charge, 1.75% of the base loan, which is usually financed into the balance.
Annual premium: The recurring FHA insurance charge, spread across your monthly payments and set by term, amount and LTV.
Base loan: The new loan amount before the upfront premium is added.
LTV: The loan balance divided by the home’s appraised value.
Refund credit: A reduction in the new upfront premium, based on how recently the old FHA loan was made.
Seasoning: The length of time you have owned and occupied the home before applying.
How Is Each Charge Calculated on a Cash-Out?
Both charges are calculated from the same starting point: the base loan. The FHA cash-out reaches 80% LTV on a home you have owned and lived in for 12 months before the case number. The appraisal sets the value, and 80% of that value sets the ceiling on the base loan. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Here is the order of operations:
1. The appraisal sets the home’s value.
2. The base loan can reach up to 80% of that value.
3. The upfront premium is 1.75% of the base loan.
4. If you finance the premium, the final loan amount is the base loan plus that premium.
5. The annual premium rate is picked from HUD’s table and applied to the balance.
The financed upfront premium is not counted against the 80% limit, so the final note can sit a bit above 80% of value. That detail comes from HUD’s handbook rules, which are worth confirming at HUD for the current wording.
Notice what is missing: the amount of cash. Insurance is charged on the whole loan. Taking out more cash raises the balance, and the insurance rises with it. But the cash itself is not what gets charged.
How Does It Look for Someone Who Already Has an FHA Loan?
Picture a homeowner with a few years of FHA payments behind them and a home that has risen in value. Walk through the same sequence in plain terms:
- The new lender orders an appraisal and sets the base loan at up to 80% of value.
- Out of that base loan, the lender pays off the existing FHA mortgage in full.
- Closing costs and prepaid items come out next.
- Whatever remains is the cash to the borrower.
- The 1.75% upfront premium, if financed, sits on top as an added balance.
Financing the premium raises the loan but does not raise your cash. Paying it in cash at closing lowers your net cash instead. HUD’s rules do not allow splitting it, so it is either fully financed or fully paid.
The point many borrowers miss is that the old balance is part of the new loan. The new insurance is charged on the old balance plus the cash, not on the cash alone. That is why a small cash-out can feel expensive: the fixed insurance load is spread over a thin slice of cash.
Run it the other way and a large cash-out looks gentler. The insurance still rises with the balance, but the cash you receive is bigger relative to the new charges. Neither case is wrong. The question is whether the cash you need justifies resetting the whole loan.
Do You Get Credit for the Old Loan’s Upfront Premium?
Possibly, and it is a credit, not cash. HUD’s rules provide a refund credit when an FHA loan is refinanced into another FHA loan within three years, according to HUD’s Office of Inspector General. The credit is a percentage of the original upfront premium, and it shrinks as months pass. It reduces the new upfront premium; it never arrives as a check.
Whether the credit applies to a cash-out refinance specifically is a point to confirm. Ask the loan officer to show the credit, if any, on the Loan Estimate.
| Situation | Upfront premium credit? |
|---|---|
| FHA to FHA, within three years | Possibly, as a credit on the new premium |
| FHA to FHA, after the window | No credit |
| FHA to conventional | No FHA credit |
The annual premium is not refunded in any of these cases. Only the upfront piece is eligible.
How Long Does the Annual Premium Last?
On the programs Lendmire places, the length depends on LTV and term. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV, it ends after eleven years. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
That leverage line matters for cash-out. Because the cash-out tops out at 80% LTV before the financed upfront premium, the base loan sits below the 90% line. Yet a refinance is a new loan, so the clock starts over rather than continuing from your old loan. A borrower five years into the old loan does not get those five years counted. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Two myths come up often:
- “The clock keeps running from my old loan.” It does not. The new loan has its own schedule.
- “Insurance drops off at 20% equity.” That is a conventional-loan idea. FHA follows HUD’s own rule, described above.
Where Does the Rule Break?
A few named situations change the picture.
Streamline instead of cash-out. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The premium continues, and there is no cash out. If your goal is only a better loan structure, a Streamline avoids the cash-out reset. If you need cash, it will not do.
Rate-and-term with an appraisal. This reaches 97.75% on a principal residence you have occupied for the previous twelve months. No cash comes out, and it allows far more leverage than the 80% cash-out ceiling. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Older pre-2009 FHA loans. HUD carved out special premium treatment for certain Streamline and Simple refinances of loans endorsed on or before May 31, 2009. A cash-out does not get those benefits.
Hawaiian Homelands loans. These Section 247 loans carry no annual premium and sit outside the 80% cash-out cap, per HUD Mortgagee Letter 2019-11. It is a narrow case, but it is the one place the general rule flips. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Leaving FHA. A move to conventional ends FHA insurance and starts a different system. That comparison is its own topic; Lendmire’s piece How Much FHA Cash-Out Insurance Costs Versus Conventional by Equity covers it.
What Else Adds to the Balance and Closing Costs?
The upfront premium is typically the largest FHA-specific item at closing. Financing it avoids cash at the table but grows the loan, and you pay interest on it for as long as you hold the loan.
Other costs still apply, including the appraisal, title work and prepaid items. A fee-by-fee breakdown belongs on your Loan Estimate, since costs differ by file. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
A broader point: a cash-out replaces your first mortgage. Home equity loans and lines of credit leave the first lien alone. If your current loan is one you would rather keep, that tradeoff matters.
When Does the Insurance Load Make Cash-Out a Poor Fit?
Three situations call for a second look.
Small cash needs. If the cash is a thin slice of the new loan, the new insurance and costs weigh heavily against it. The whole balance is re-insured, not just the cash.
Short holding period. Paying a new upfront premium and starting a new annual schedule is hard to recoup if you expect to sell soon.
Debt consolidation. According to a CFPB report on cash-out borrowers, paying off other debts was the most common reason for cash-out. The same research found credit scores improved at first but later drifted down. Turning unsecured debt into mortgage debt puts your home behind it. That is a real tradeoff, not a footnote.
It is a genuine toss-up for many borrowers. The cash may be worth it for a project that raises value or for high-cost debt. For a one-off expense, a smaller product may fit better.
What Should You Confirm on Your Loan Estimate?
Before moving forward, ask the loan officer to point to each of these:
- The base loan amount and the 1.75% upfront premium on it.
- Whether the upfront premium is financed or paid in cash.
- Any refund credit from the old FHA loan and how it was figured.
- The annual premium percentage and how long it lasts.
- Net cash to you after the payoff, costs and prepaids.
- Your seasoning: twelve months owned and occupied before the case number.
Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Frequently Asked Questions
Is the mortgage insurance charged on the cash I take out?
No. Both charges are figured on the entire new loan, which includes the payoff of your old balance. The cash is simply what remains after the payoff and costs. That is why a small cash-out can carry a heavy insurance load relative to what you receive.
Is the upfront premium financed?
Usually, yes. It can be financed fully or paid fully in cash, but not split. Financing raises your loan balance without raising your cash. Paying in cash keeps the balance lower but cuts your net proceeds.
Do I get my old premium back?
Partly, in some cases. A refinance from FHA to FHA within three years can produce a credit that reduces the new upfront premium. It is a credit, not a refund check, and it shrinks as time passes. The annual premium is never refunded.
Does the annual premium ever go away?
Yes, it can. On a thirty-year loan above 90% LTV it lasts for the term; at or below 90% LTV it ends after eleven years. A cash-out starts a new schedule, so the clock does not continue from your old loan. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Does the FHA cash-out reach more than 80% of my home’s value?
The cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. The financed upfront premium sits on top of that base figure. The 80% limit applies to the base loan. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
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 through its FHA cash-out refinance program. Lendmire’s piece How Much the Annual MIP Adds to an FHA Cash-Out Payment Over Time is a good next read.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2023-05
2. HUD OIG, Oversight of FHA Refunds
3. HUD Mortgagee Letter 2019-11
4. CFPB news release: cash-out borrowers and credit scores
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 Long Does an FHA Cash-Out at the Cap Carry MIP? · How Much Monthly Payment an FHA Cash-Out Frees After Mortgage Insurance · How Much FHA Cash-Out Programs Lend by Credit and Loan-to-Value Tier
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.