The Quick Read: You can’t switch FHA mortgage insurance off, but you can shape it at the start. Your term, your starting loan-to-value ratio (LTV) and your loan size set how much the annual premium costs and how long it lasts. The biggest single lever is whether you start at or below 90% LTV, because that line decides between eleven years and the whole loan term. Everything is subject to lender guidelines and full file review.
What Can You Actually Control?
Three things set your premium, and you pick all three before closing: the loan term, the starting LTV and the base loan amount. After closing, almost nothing changes the schedule. Extra payments, a rising home value and a new appraisal do not rewrite it on a newer loan.
FHA payment estimate
Starting assumptions reflect an example price and the FHA minimum investment. Replace them with your own figures.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA loan quote.
Illustrative starting assumptions: a $350,000 price, the FHA minimum investment as the down payment, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not an FHA loan quote; your rate is set by the lender at lock. FHA mortgage insurance follows HUD’s published schedule for the term, leverage and loan size entered; taxes, insurance and dues are editable estimates; closing costs are not included; county loan limits are not checked here. Licensed in sixteen states for consumer mortgages. Lendmire is not affiliated with or acting on behalf of FHA, HUD, or the federal government.
Here are the key takeaways:
- FHA charges two premiums. One is upfront and financed. One is annual and billed monthly.
- The upfront premium is fixed. Across the wholesale programs we place FHA files with, it is 1.75% of the base loan.
- The annual premium is the part you can shape. It ranges from 0.15% to 0.75% of the balance depending on term, loan amount and LTV.
- Duration matters more than most people think. On a thirty-year loan above 90% LTV, the annual premium lasts the full term. At or below 90%, it ends after eleven years.
- A shorter term lowers the annual tier but raises the principal-and-interest payment, which counts in your ratios. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
If you are still deciding whether FHA is the right product, Lendmire’s FHA loan programs page covers the basics. This piece is about the premium.
Key Terms Defined
Upfront mortgage insurance premium (UFMIP): A one-time charge, 1.75% of the base loan, that most borrowers roll into the loan balance.
Annual mortgage insurance premium (MIP): A yearly percentage of your balance, collected in twelve monthly installments as part of your housing payment.
Base loan amount: The loan before the upfront premium is added. The upfront premium is calculated on this figure.
LTV (loan-to-value): Your loan divided by the lesser of the price or the appraised value. A 96.5% LTV means a 3.5% minimum investment. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Endorsement: The point when the agency that runs FHA insures your loan. The premium schedule in force on that date applies to you.
Case number: The ID assigned to your FHA file at the start. Its date decides which cancellation rules govern older loans.
How Is the Premium Built, Step by Step?
The premium follows a fixed sequence, and the sequence tells you where your choices matter. Your lender doesn’t set these numbers. The agency does, and your price and your down payment feed into them.
1. The appraisal and your investment set the starting LTV. The minimum is 3.5% down at a decision score of 580 or higher, which means 96.5% maximum financing. A larger down payment lowers the LTV.
2. Your term sets the rate tier. A term of fifteen years or less carries much lower annual rates than a longer term.
3. Your base loan amount sets the size tier. Loans above the conforming limit pay a higher annual percentage. County loan limits apply, and they change every year.
4. The upfront premium is added. It is 1.75% of the base loan, and borrowers typically finance it. That raises the balance you owe.
5. The annual premium is calculated on your balance and split into monthly installments. HUD’s own example works this way: a given balance times the annual percentage, divided by twelve (HUD press release).
6. Cancellation follows the schedule. For newer loans, that is eleven years or the full term, depending on your starting LTV and term.
One more point. The annual premium is part of your housing payment, so it also counts in the housing ratio lenders test. The base pair is 31/43 (housing and total debt as a share of income). Documented compensating factors can stretch that to 40/50 at the top tier. A lower annual premium can help you qualify, which HUD noted when it cut premiums.
Lever One: Start at 90% LTV or Lower
Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
This is the lever with the longest reach. At or below 90% LTV on a thirty-year loan, the annual premium ends after eleven years. Above 90%, it stays for the term. That is the rule in HUD Mortgagee Letter 2023-05, and the programs we use follow it. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Here is the catch most people miss. On a typical-size thirty-year loan, crossing the 90% line mainly changes how long you pay. It changes how much you pay by the year much less. Going above roughly 95% LTV nudges the annual percentage up a notch. So the 90% line is the one that earns its keep. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Picture two buyers purchasing the same home. One finances 96.5% and puts down the 3.5% minimum. The other finances 90% and brings 10% down. Both pay the same upfront percentage. The first pays the annual premium for as long as the loan lives. The second stops after eleven years. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The cost is cash. Ten percent down is nearly three times the minimum investment, and that cash isn’t free. It may come from savings, a gift or other documented sources, subject to lender guidelines. Seller or interested-party contributions to 6% of the price can cover some closing costs, but they don’t count as your investment toward the LTV line. Keep that straight with your loan officer.
Also remember that the starting value decides this. Appreciation later does not move the line. HUD’s handbook says it will not consider new appraised values when working out whether you have reached the LTV needed for cancellation (HUD Handbook 4000.1 servicing text).
Lever Two: Pick a Shorter Term
A fifteen-year term sits in a much lower annual-premium tier than a thirty-year term. The agency’s schedule shows the same pattern at every LTV. The lower end of the 0.15% to 0.75% range belongs mostly to shorter terms.
The trade-off is plain. Fifteen years of principal and interest means a higher payment. That payment goes into your housing ratio, so a shorter term can push a borderline file over the 31/43 base pair. Some files recover through documented compensating factors. Others don’t.
This one is a genuine toss-up for many buyers. The lower premium and faster equity are real. So is the tighter monthly budget. A borrower with stable income and a payment well inside the ratios may like the shorter term. A borrower stretching to buy at all usually can’t use it.
Lever Three: Watch the Loan-Size Tier
Loans above the conforming limit pay a higher annual percentage than loans at or below it. The agency ties that threshold to the national conforming loan limit, so it moves when that limit moves.
You can’t change the line. You can change which side of it you land on. A larger down payment, a lower price or a seller credit that cuts the base loan can all keep you under the threshold. Most buyers never get near it, but in higher-cost counties it matters. County loan limits apply, so your loan officer should check where yours sits.
A smaller base loan also shrinks the upfront premium and the annual premium in dollar terms, since both are percentages. That’s a smaller effect than crossing a tier, but it adds up.
Where Are You? A Quick Router
| Your situation | Best levers | What won’t work |
|---|---|---|
| Not yet applied | 90% LTV, shorter term, base loan size | Waiting for appreciation to cancel |
| Closed on a newer loan | Refinance when equity allows | Extra payments, a new appraisal |
| Older loan (early-2010s or earlier) | Check cancellation rules | Assuming newer rules apply |
| Older FHA loan, pre-cutoff | Streamline refinance | Assuming every FHA loan is reviewed |
The bottom two rows depend on dates, so read the next two sections before you decide.
Why Doesn’t 20% Equity Cancel FHA Mortgage Insurance?
It doesn’t because FHA mortgage insurance isn’t private mortgage insurance (PMI). PMI belongs to conventional loans, and the rules for removing it are different. The consumer agency’s PMI page says as much and sends FHA questions to the servicer (CFPB).
For loans with a newer case number, the schedule decides. If the duration is eleven years, it ends then. If the duration is the term, it ends only when the loan is paid off, refinanced or otherwise terminated. Hitting 20% equity changes none of it.
This is the myth we hear most from first-time buyers. They hear “cancel at 20%” from a friend with a conventional loan and assume FHA matches. It doesn’t.
Where the General Rule Breaks
Rules like these have edges, and a few of them can save you money. The agency’s own documents define each one.
Older loans follow an older rule. For FHA loans with case numbers assigned before HUD’s June 3 cutoff in the early 2010s, annual MIP cancels automatically at 78% of the lesser of the original price or appraised value. The annual premium must have been paid for at least five years (HUD FHA Answers). The upfront premium is excluded from that calculation, and new appraisals are ignored. If you hold an older loan, ask your servicer which cohort you belong to.
Streamline refinances of older FHA loans. Some FHA loans endorsed before a late-2000s cutoff date qualify for sharply reduced premiums when refinanced by streamline. HUD’s guidance says the borrower must be current on the existing FHA loan (HUD press release). Loans endorsed after that cutoff pay the standard upfront premium on a refinance. The rule depends entirely on the date of your old loan.
Premium cuts didn’t reach everyone. The agency’s premium reduction applied to loans endorsed on or after the effective date in its letter. It covered single-family homes, condos and manufactured homes across LTV bands. It excluded those older streamline and simple refinances. If your loan closed before the effective date, you didn’t get the cut. A refinance into a new FHA loan could capture it, though the costs of refinancing have to make sense.
Special programs. Hawaiian Home Lands (Section 247) loans carry no annual premium. Indian Lands (Section 248) loans carry no upfront premium. Reverse mortgages (HECM) and Title I loans use different premium rules entirely.
The upfront premium and refunds. If you refinance FHA to FHA within a limited window, a credit toward the new upfront premium may apply. The details are in Lendmire’s piece FHA Upfront Mortgage Insurance Premium Financing and Refund Rules. Have your servicer confirm eligibility.
Can You Pay the Upfront Premium in Cash?
You can, but you must pay all of it one way. The handbook treats the upfront premium as either entirely financed or entirely paid in cash. A split is not allowed. Your loan officer should verify this against the current handbook for your file.
Which is better depends on your cash. Financing it keeps cash in your pocket at closing but raises your balance, and the annual premium is calculated on that balance. Paying cash lowers the balance. Most buyers using FHA need that cash elsewhere, so financing is the norm.
After Closing: What Moves the Needle
Once you close, your options narrow to three: wait, refinance or (on an older loan) rely on the old cancellation rule.
Refinance out of FHA. This is how most borrowers on newer loans end the premium early. You need enough equity and a credit and income profile that fits the new loan. A conventional loan may carry PMI of its own, and whether it does depends on that loan’s LTV and rules. The Congressional Research Service describes how FHA premiums are set as a percent of the loan amount, within statutory maximums that HUD can set lower (CRS overview). That’s why premiums can change by letter.
FHA Streamline. It refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit test. The premium continues. A streamline can lower the premium only if your old loan falls into the older-loan exception above.
FHA rate-and-term. With an appraisal, this refinance reaches 97.75% on a principal residence you’ve occupied for the previous twelve months. A new loan carries a new premium schedule.
FHA cash-out. It reaches 80% LTV on a home owned and occupied for twelve months before the case number. It doesn’t cancel premiums. It restarts them. For one example of what that does to proceeds, see Lendmire’s article How Much the Upfront Premium Cuts an FHA Cash-Out at the County Limit. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Before refinancing, run the break-even: closing costs divided by monthly savings gives the months it takes to recoup the cost. Add the effect of restarting your loan clock. A refinance that saves little each month and costs a lot upfront rarely wins.
What Doesn’t Work
- Extra principal payments on a newer loan. They shorten your payoff, not your premium schedule.
- A new appraisal. The agency ignores new appraised values for cancellation on current loans.
- Waiting for 20% equity. That’s a PMI rule.
- Assuming the 78% rule covers you. It covers only the older case-number cohort.
- Splitting the upfront premium. It’s all cash or all financed.
How Does MIP Compare With PMI?
| Feature | FHA MIP | Conventional PMI |
|---|---|---|
| Premiums | Upfront plus annual | Typically monthly only |
| Set by | The agency | The insurer |
| Removal at equity | Not on newer loans | Often at set equity levels |
| Governed by | Premium schedule | Servicer and loan terms |
The comparison matters at the purchase decision, not only as an exit. A borrower with a stronger credit profile and a larger down payment sometimes does better with conventional. A borrower with a lower score or a thin down payment often can’t.
How to Find Your Own Tier
Your closing documents tell you which rules apply. Look for four items:
1. Your case number date. It decides the cancellation cohort.
2. Your term. Fifteen years or less sits in the lower tier.
3. Your original value and loan amount. They give the starting LTV.
4. Your endorsement date. It shows which premium schedule you got.
Your servicer can confirm each one. The agency’s premium Q&A also points to the handbook’s appendix, where the schedules live (HUD premium Q&A). Schedules change, so check that you’re reading the one that matches your endorsement date.
Next Step
If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Ask about term, LTV and loan-size tiers before you pick a structure. Nothing here is a commitment to lend, and every figure depends on lender guidelines and full file review.
Frequently Asked Questions
Does an FHA cash-out refinance get rid of mortgage insurance?
No. A cash-out refinance creates a new FHA loan with a new upfront premium and a new annual premium schedule. The program reaches 80% LTV on a home you’ve owned and occupied for twelve months before the case number. At that leverage, you are above 78% but at or below 90%, so the premium duration depends on your starting LTV and term. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Will extra payments help me cancel FHA mortgage insurance sooner?
On a newer loan, no. The schedule is fixed by your starting LTV and term, and extra payments don’t change it. They do shorten your payoff and cut interest. On an older loan in the pre-cutoff cohort, paying down principal can bring you to 78% sooner, provided you’ve paid the annual premium for at least five years.
Can rising home values end my premium?
Not on a newer loan. The agency does not consider new appraised values when working out whether you’ve reached the LTV needed for cancellation. Appreciation does help if you refinance, since it raises your equity and may let you qualify for a loan without FHA insurance.
Is a bigger down payment worth it just to limit the premium?
It depends on what else the cash would do. Moving to 90% LTV or lower shortens your annual premium from the full term to eleven years on a thirty-year loan. That can save a meaningful amount over time. It also drains savings, and a thin cash cushion is a risk of its own. Weigh the premium savings against your reserves and other goals. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Does the premium count against my qualifying ratios?
Yes. The annual premium is part of your monthly housing payment, so it feeds the housing ratio. The base pair is 31/43, and documented compensating factors can reach 40/50 at the top tier. A lower annual premium can help you qualify.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD press release on the premium reduction
2. HUD Mortgagee Letter 2023-05
3. HUD Handbook 4000.1 servicing text
4. CFPB
5. HUD FHA Answers: MIP for loans with earlier case numbers
7. Congressional Research Service, FHA-Insured Home Loans: An Overview
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA vs Conventional Loan for a Condo Buyer on Mortgage Insurance · How to Get Out of FHA Mortgage Insurance as a 2-4 Unit House Hacker · Can You Get an FHA Loan and What Decides Approval?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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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.