The Quick Read: FHA mortgage insurance belongs to the FHA loan, not to you. When a new conventional cash-out loan pays off your FHA loan, both FHA premiums end with the old loan, and the new loan carries no FHA insurance of any kind. Conventional cash-out on a one-unit home generally tops out at 80% of value, and that is the same point where private mortgage insurance (PMI) starts, so most borrowers who stay under the cap do not pay PMI either. The upfront premium you already paid is not refunded when you leave FHA.
What Happens to FHA Mortgage Insurance at Payoff?
It ends. FHA insurance is attached to the loan. Pay the loan off and the insurance terminates with it. A conventional replacement loan is not FHA-insured, so it has no upfront premium and no annual premium.
Here is the structure being left behind. The CFPB explains that FHA requires mortgage insurance on all FHA loans, with an upfront piece paid at closing and a monthly piece built into the payment. Across the wholesale programs Lendmire places FHA files with, the upfront premium is 1.75% of the base loan and is usually financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90%, it ends after eleven years.
That duration rule is why people leave FHA in the first place. Paying the balance down faster does not cancel the premium on newer loans. A refinance is the exit.
Do You Get the Upfront Premium Back?
No, not when you leave for a conventional loan. A refund credit exists only when an FHA loan is refinanced into a new FHA-insured loan. Per the HUD FHA fact sheet, the old premium’s refund may be applied toward the new loan’s upfront premium. For loans endorsed on or after December 8, 2004, no refund is due unless the borrower refinanced to a new FHA loan, and none is due after the third year of insurance.
Two points that trip people up:
- The refund is a credit toward the new premium. It is not cash to you.
- No refund is due on an assumption or when HUD pays a claim.
So the old upfront premium is a sunk cost if you go conventional. It is a partial credit if you go FHA to FHA inside the window, and nothing after that. Weigh it, but do not let it drive the decision alone. Older loans sit outside the refund window anyway.
Why Does Cash-Out Change the Mortgage Insurance Answer?
Because cash-out sets the size of the new loan, and the size of the new loan sets the insurance trigger. Every extra dollar you take out raises the new balance against the same home value. Stay under the cap and no insurance applies. Cross it and the product changes.
Fannie Mae’s rules show how the pieces fit. A conventional first mortgage with an LTV above 80% needs mortgage insurance unless another approved credit enhancement is in place, per the Fannie Mae Selling Guide. Fannie Mae’s eligibility matrix caps a standard primary-residence cash-out at 80% for a one-unit home and 75% for two to four units. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
That is the catch worth saying out loud. The cash-out ceiling and the PMI trigger meet at the same number on a one-unit home. A borrower who takes cash out and stays at or under 80% generally has no PMI. A borrower who wants more than 80% is no longer in standard cash-out territory at all.
Financed borrower-purchased mortgage insurance is also not eligible on Fannie Mae cash-out loans, per Selling Guide B7-1-04. You cannot cover a high-LTV cash-out by rolling insurance into the loan.
Three Outcomes on the Same Home
Run the logic on one home with an FHA balance and plenty of equity. No dollar figures needed, just percentages of value.
| Path | New loan vs. value | Mortgage insurance |
|---|---|---|
| Conventional rate-and-term (limited cash-out) | Above 80% possible | PMI if above 80% |
| Conventional cash-out, one unit | 80% or less | None on this loan |
| FHA cash-out | 80% or less | New upfront + annual FHA premium |
Say a borrower owes 60% of the home’s value on an FHA loan and wants cash for a renovation. A conventional cash-out up to 80% of value leaves room to take cash and carries no mortgage insurance. Now say the same borrower owes 78% and wants cash. The room under 80% is thin, and closing costs and any financed amounts eat into it. Cash-out proceeds are what remains after the cap, the payoff and the costs. Little equity cushion means little cash. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Third case: a borrower owes 90% and wants no cash, only to leave FHA. That is a limited cash-out refinance, not a cash-out. Per the same Fannie Mae matrix, limited cash-out on a primary residence can reach 97% for a one-unit fixed-rate loan. At that leverage PMI is required. Whether that beats the FHA premium depends on credit and LTV. The CFPB notes PMI is generally cheaper than FHA insurance for borrowers with good credit, while FHA insurance does not vary with credit score.
FHA Cash-Out to FHA Cash-Out: What Resets
Staying in FHA brings both premiums back. The FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. Per HUD Mortgagee Letter 2019-11, the cap was cut to 80% of adjusted value from the prior 85%. Borrowers who remember 85% are working from old information. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Three mechanics matter here:
1. The cap covers combined debt. Any second lien that stays in place counts against the 80%.
2. The upfront premium is financed into the balance. HUD measures LTV before that premium is added, but the financed premium still raises the balance and shrinks the cash left to you.
3. The annual premium restarts. An FHA cash-out is capped at 80%, which would put it in the 90%-or-below duration tier. Appendix 1.0 of the current handbook governs, so confirm the tier before relying on it.
HUD Mortgagee Letter 2023-05 sets the 1.75% upfront premium basis and lists the exceptions: streamlines and simple refinances of FHA loans endorsed on or before May 31, 2009, plus Hawaiian Home Lands loans. It also cut the annual premium by 30 basis points for most loans endorsed on or after March 20, 2023, per HUD FHA INFO 2023-11. That cut touched only the annual premium. The upfront premium did not change.
Lendmire’s FHA cash-out refinance program covers the FHA side of this comparison, including the 12-month ownership and occupancy test.
How the File Gets Underwritten, Step by Step
Here is the sequence.
1. Classify the transaction. Cash-out means proceeds go beyond paying off existing debt and costs. A no-cash-out or limited cash-out refinance has different leverage and insurance consequences. This is the biggest fork in the road.
2. Check seasoning and occupancy. FHA cash-out requires 12 months of ownership and owner-occupancy before the case number is assigned, with payments made on time. Forbearance history adds conditions. Conventional programs set their own seasoning terms.
3. Order the appraisal. FHA measures LTV against appraised adjusted value, and subordinate liens count toward the cap. Conventional loans can use an appraisal, an automated valuation or another acceptable method.
4. Make the insurance decision. FHA to FHA: both premiums apply, with a partial credit only inside the refund window. FHA to conventional at 80% or less: no FHA premium, no PMI. FHA to conventional above 80% (limited cash-out only): PMI applies.
5. Pay off and terminate. The servicer notifies HUD that the insurance has ended. Confirm that notice went out. HUD form 92900-B describes the termination and refund treatment.
What decides the outcome, in order: equity left after the new loan, the loan types on both ends, the age of the old FHA loan, then credit and debt-to-income, which feed conventional pricing and any PMI cost.
Where the Rule Breaks
The clean story above has named exceptions. These are the ones that change outcomes.
Unit count and occupancy. Conventional cash-out caps at 75% for two to four units. FHA cash-out is for owner-occupied principal residences only. A manufactured home carries a much lower conventional cash-out cap in the Fannie Mae matrix and its own FHA restrictions. If the home is no longer your residence, occupancy decides the leverage, and the FHA cash-out is off the table.
Older FHA loans. Streamlines and simple refinances of loans endorsed on or before May 31, 2009 sit outside both the upfront premium and the 2023 annual cut. Older loans can also have different cancellation rules by case-number date, term and original LTV.
Equity that falls short. If the numbers land just over 80%, the options are a smaller cash-out, a limited cash-out with PMI, staying FHA, or waiting for the balance to drop or the value to rise. A second lien that cannot be paid off counts against the cap too.
Cash-out is not rate-and-term. Borrowers sometimes label a limited cash-out as cash-out because they want a little money back. Lenders classify it by the numbers. Take more than the allowed amount and the loan becomes a standard cash-out with the 80% cap.
After the Switch: Cancelling PMI and Resetting the Clock
If PMI does apply, the Homeowners Protection Act sets the cancellation path. Per the CFPB, you can request cancellation at 80% of the original value, and servicers must terminate automatically at 78% when payments are current. The CFPB notes FHA and VA loans follow different requirements, so FHA borrowers should contact their servicer.
Two cautions. The cancellation date is tied to original value, and a new loan resets that baseline. Anyone refinancing into a PMI loan starts a fresh clock. And the old habit of “cancel at 20% equity” does not apply to FHA. A state attorney general’s PMI fact sheet makes the point that faster paydown does not cancel FHA insurance.
What the Decision Looks Like in Practice
Think of it as a short checklist.
- Stay FHA if equity is thin, the loan is new enough to earn a refund credit, or credit is weak enough that conventional pricing would cost more than the FHA premium.
- Conventional rate-and-term if you want out of FHA and do not need cash. Expect PMI if the new loan is above 80%.
- Conventional cash-out if you have clear equity, one unit, and you can land at 80% or below after costs and payoff. No insurance is the usual result.
- FHA cash-out if you need cash and cannot qualify conventionally, accepting both premiums again.
The monthly budget moves in one clear direction when you leave FHA and stay under the cap: the FHA annual premium drops out of the payment. What the new payment totals depends on balance, term and pricing, so compare Loan Estimates side by side before you commit. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Upfront mortgage insurance premium (UFMIP): The one-time FHA premium, 1.75% of the base loan, usually financed into the balance.
Annual mortgage insurance premium (MIP): The monthly FHA premium, set by term, loan amount and LTV, with a duration that depends on original LTV.
Private mortgage insurance (PMI): Insurance on a conventional loan above 80% LTV, priced on credit and leverage, and cancellable under federal law. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Limited cash-out refinance: A refinance that pays off the loan and costs without giving you meaningful cash, with different leverage limits than cash-out.
Adjusted value: The appraised value HUD uses to measure LTV on an FHA loan.
Frequently Asked Questions
Does a cash-out refinance remove FHA mortgage insurance?
Yes, if the new loan is conventional. FHA insurance ends when the FHA loan is paid off. If the new loan is another FHA loan, both premiums start again.
Will I pay PMI on a conventional cash-out refinance?
Usually not on a one-unit primary residence. Standard cash-out tops out at 80% LTV, and PMI starts above 80%. Limited cash-out can go higher and does carry PMI above that line.
Do I get my upfront premium back when I leave FHA?
No. A credit exists only for a new FHA loan, only inside the refund window, and only toward the new premium. Loans past the third year of insurance get no refund.
Can I refinance FHA to FHA and avoid mortgage insurance?
No. Every FHA loan carries both premiums. An FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number, and the premiums apply again. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
How long until PMI can be cancelled after a conventional refinance?
You can request cancellation at 80% of the original value, and servicers must terminate at 78% if payments are current. A new loan resets that baseline. Programs and files vary by lender guidelines.
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
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. CFPB: What is mortgage insurance and how does it work
2. HUD FHA Homeowners Fact Sheet
4. Fannie Mae eligibility matrix
6. HUD Mortgagee Letter 2019-11
7. HUD Mortgagee Letter 2023-05
10. CFPB: When can I remove PMI
11. PMI 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: FHA Cash-Out Upfront Mortgage Insurance and Refund Rules · FHA Cash-Out Refinance Guidelines When the First Mortgage Is Cheap · Can You Get an FHA Cash-Out Refinance and How Much Is Allowed?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.