The Quick Read: For most FHA borrowers today, refinancing into a conventional loan is the main way to end FHA mortgage insurance. It works only if the new loan is at or below 80% of the home’s new appraised value, because above that the conventional loan usually carries private mortgage insurance of its own. Your current equity does not cancel FHA insurance. A new loan, based on a new appraisal, is what turns that equity into savings.
Key Takeaways
- Refinancing from one FHA loan into another FHA loan does not drop the annual premium. The premium continues.
- A conventional refinance ends mortgage insurance outright only at 80% loan-to-value or lower.
- Older FHA loans, with case numbers before June 3, 2013, may cancel on their own. Check before you refinance.
- Private mortgage insurance on a conventional loan has legal exit rights. FHA insurance generally does not.
- The real decision is break-even: do the monthly savings repay the closing costs before you move or pay off the loan?
Why Does FHA Mortgage Insurance Stick Around?
FHA mortgage insurance has two parts. The upfront premium is 1.75% of the base loan, and most borrowers finance it into the balance. The annual premium is charged monthly, in a range from 0.15% to 0.75% of the balance depending on term, loan amount and LTV. (LTV, or loan-to-value, is your loan balance divided by your home’s value.)
Refinance savings and break-even estimate
The starting figures are an example value with a balance in proportion and a placeholder for costs. Replace them with yours, and enter the current rate from your statement.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $245,000 current balance, a current rate you enter and a remaining term seeded at twenty-five years, closing costs seeded at $5,000 as an editable placeholder (not a fee quote) and rolled into the new loan, 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 new rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a refinance quote; a refinance is priced by the lender at lock, and the current rate, the remaining term and the closing costs are figures you enter. The current payment is estimated from the balance, the current rate and the remaining term; the break-even divides the closing costs by the monthly saving and ignores the interest effect of a longer term. On the VA IRRRL the funding fee is added to the loan unless the veteran is exempt. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages; Lendmire is a broker, never the lender.
Here is the part that surprises people. On a thirty-year loan above 90% LTV, the annual premium lasts the whole term. At or below 90%, it ends after eleven years. Those are the program rules across the wholesale lenders Lendmire works with, and they are subject to lender guidelines and full file review.
Why does it last so long? HUD changed the rule for loans with case numbers assigned on or after June 3, 2013. HUD Mortgagee Letter 2013-04 says annual premiums are collected for the maximum duration the statute allows. It also removed the old exemption for loans of 15 years or less that started at 78% LTV or lower. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Paying down principal or watching your home appreciate does not change that clock. That is why borrowers who bought with a small down payment, as FHA's 3.5% minimum investment invites, often end up looking at a refinance.
Can You Skip the Refinance? Check Your Loan's Date First
Before you shop for a new loan, find your FHA case number date. It decides whether you need a refinance at all.
| Your FHA loan | Does insurance end on its own? |
|---|---|
| Case number on or after June 3, 2013 | No cancellation by equity. Duration follows term and LTV at origination. |
| Closed on or after Jan 1, 2001, case number before June 3, 2013 | Possibly. Automatic cancellation can apply. |
| Older than that | Different rules. Ask your servicer. |
For the middle group, HUD Handbook 4000.1 has a cancellation section. HUD cancels these loans automatically. On terms longer than 15 years, HUD's guidance says cancellation comes when the loan reaches 78% of the lesser of the original sales price or appraised value, after at least five years of annual premiums. Terms of 15 years or less follow different tests.
Two details trip people up. HUD tests the original amortization schedule, not a new appraisal. And the LTV test leaves out the upfront premium. So a higher appraisal today will not cancel an existing loan's insurance.
If your loan falls in the middle group, a refinance purely to drop insurance may be unnecessary. Check your statement, and ask your servicer to confirm in writing.
How Does Refinancing Actually Drop the Insurance?
A refinance replaces your FHA loan with a new one. The new loan pays off the FHA loan at closing, so its premiums stop because the loan is gone. Whether the new loan has insurance depends on the new loan.
The key number is 80%. The CFPB says private mortgage insurance usually applies when you refinance a conventional loan with less than 20% equity. So the test looks like this:
- New balance at or below 80% of the new appraised value: no mortgage insurance on the conventional loan.
- New balance above 80%: the conventional loan carries private mortgage insurance instead.
A refinance that pays off your FHA loan with no cash back is typically treated as a limited cash-out, or rate-and-term, refinance. If you take cash out, conventional guidelines cap the loan lower, which makes the 80% target harder to hit.
Notice what happened to your equity here. The lender orders a new appraisal, and that value sets the LTV. This is the only moment appreciation counts for you.
Do You Have Enough Equity? A Quick Self-Check
Estimate your LTV before you apply. Divide your current payoff balance by a realistic value for your home. Include the financed upfront premium in your balance, because it is part of what you owe today.
Picture a homeowner who bought with high-LTV financing. After several years of payments and steady appreciation, the balance has dropped to a level that sits close to, but not yet at, the threshold a lender requires. That owner is close but not there. A small change in the appraisal, or a modest cash payment at closing, can decide the outcome.
An appraisal can also land below your estimate. If it does, you have four honest options:
| If the appraisal comes in low | What it means |
|---|---|
| Bring cash to closing | Shrinks the loan to reach 80% |
| Refinance anyway with PMI | Insurance stays, but on better exit terms |
| Wait and pay down more | Costs time, saves a closing |
| Stay put | Right answer when savings are thin |
Why PMI Can Still Beat FHA Insurance
Suppose you land at 85% LTV. Refinancing into a conventional loan still might make sense, and the reason is exit rights. Final terms depend on the lender's guidelines, the property type, and the borrower's complete credit picture.
Private mortgage insurance falls under the Homeowners Protection Act, which creates cancellation and termination rights. The CFPB supervises that law. It covers private insurance, not FHA premiums. So PMI can end as you build equity, while FHA insurance generally cannot on a post-2013 loan.
One trap deserves attention. A conventional loan can come with lender-paid mortgage insurance, where the lender covers the premium and builds the cost into the loan. The CFPB's examination manual says the borrower cannot cancel lender-paid insurance, and it does not terminate automatically under the Act. If you hear "lender-paid," ask exactly how and when it ends.
Across the files Lendmire arranges, the mistake we see most often is chasing "no mortgage insurance" without asking what replaced it. A broker who runs both versions side by side, with and without PMI, shows you the real tradeoff.
What Does It Cost and What Do You Give Up?
A refinance has its own closing costs, and they appear on your Loan Estimate and Closing Disclosure. Compare them line by line. Some borrowers see costs "built in" to the loan balance or the pricing. That does not make them disappear. It moves them.
You also leave behind whatever you have already paid in FHA premiums. HUD does not publish a plain consumer rule on any refund of the upfront premium when an FHA loan is paid off, so treat that as a question for your servicer. Do not count on getting anything back.
Mortgage insurance on the new loan shows up in two places. Per the CFPB, a monthly premium appears on page 1 of the Loan Estimate under Projected Payments, and a one-time premium appears in section B on page 2. Check both before you sign anything.
Then run the break-even. Add up the closing costs. Divide by the monthly savings. That is how many months you need to stay. If you expect to move or pay off the loan sooner than that, the refinance loses money even though the payment looks better.
HUD has tried to show how big this line item is. When it lowered the annual premium by 0.30 percentage points for loans endorsed on or after March 20, 2023, it said the median-price buyer would save more than $1,400 in the first year, per HUD's announcement. That is an illustration, not your number. But it tells you mortgage insurance is a real piece of the monthly budget. It also means a borrower with a loan endorsed after that date may find the refinance less urgent.
What Do You Need to Qualify?
You are applying for a brand-new loan, so you requalify. Expect the lender to look at:
- Credit. Some lenders set a higher credit floor on conventional loans than on FHA, so the score that worked before may not be enough.
- Income and debts. The lender checks your debt-to-income ratio, meaning your monthly debts as a share of income.
- Equity. The appraisal sets the loan-to-value, and that drives everything above.
- Occupancy. For this kind of refinance you generally live in the home. Occupancy changes the allowed leverage, and a second home or rental carries lower limits.
- Documents. Typically pay stubs, traditional personal-income documentation or W-2s, bank statements and a mortgage statement showing your payoff.
Programs and figures vary by lender, and all of this is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Which Refinance Fits Your Goal?
Not every refinance removes the insurance. Match the loan to what you want.
| Refinance type | Drops mortgage insurance? | Appraisal? |
|---|---|---|
| FHA Streamline | No, premium continues | No |
| FHA rate-and-term | No, new FHA premium | Yes |
| FHA cash-out | No, new FHA premium | Yes |
| Conventional rate-and-term | Yes, at 80% LTV or lower | Yes |
The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, which means the new loan must make you measurably better off. It can lower your payment. It will not drop the insurance. The FHA rate-and-term reaches up to 97.75% on a principal residence occupied for the previous twelve months. The FHA cash-out reaches 80% LTV on a home owned and occupied for twelve months. Both keep you inside FHA's premium system. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Annual premiums apply to FHA-to-FHA refinances. HUD's 2023 letter carved out only a narrow group, including streamline refinances of loans endorsed on or before May 31, 2009. For nearly everyone else, a new FHA loan restarts the exposure.
If the Streamline's lower payment is the goal, read Lendmire's piece Can an FHA Streamline Skip the Appraisal and Drop Mortgage Insurance?. The short version matches the table: no appraisal, no insurance relief.
The Step-by-Step Process
1. Identify your rule set. Find your case number date and original LTV.
2. Estimate your equity. Aim for a new balance at or below 80% of the likely appraised value.
3. Choose the new loan type. Conventional is the route that can end mortgage insurance. Details on FHA loan programs help you compare it against staying put.
4. Apply and document. Provide income, asset and credit documents, plus your current mortgage statement.
5. Appraisal. The lender orders it to verify the new LTV.
6. Review disclosures. Read the Loan Estimate for the monthly and one-time insurance lines.
7. Closing and payoff. The new loan pays off the FHA loan, and the FHA premiums end with it.
When It Is Smarter to Wait
Sometimes the right move is nothing. Skip the refinance when:
- Your loan is an older one that is close to automatic cancellation.
- You plan to sell before the break-even point.
- Your credit or debt ratios have slipped since you bought.
- Your LTV is far above 80% and the new loan would carry PMI at a cost close to what you pay now.
A refinance should win on the numbers. "Mortgage insurance is annoying" is not a number.
Common Mistakes and Myths
"FHA insurance drops at 20% equity like PMI." Not for post-June 2013 loans. Cancellation rights under the Homeowners Protection Act apply to private insurance, not FHA premiums.
"A higher appraisal cancels my current insurance." HUD does not use a new appraised value to test an existing loan for cancellation. The appraisal only matters for a new loan.
"Refinancing always removes mortgage insurance." Not when the new loan sits above 80% LTV. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
"MIP and PMI are the same thing." They are separate products under different rules. FHA's insurance is called mortgage insurance premium, or MIP. Private mortgage insurance, or PMI, belongs to conventional loans.
"Lender-paid insurance can be cancelled later." The borrower cannot cancel it.
Key Terms Defined
Mortgage insurance premium (MIP): The insurance FHA charges, paid as an upfront amount and a monthly annual premium.
Private mortgage insurance (PMI): Insurance on conventional loans with less than 20% equity, with legal cancellation rights.
Loan-to-value (LTV): Your loan balance divided by your home's value, shown as a percentage.
Case number: The number assigned to your FHA loan, whose date decides which insurance rules apply.
Net tangible benefit: The requirement that an FHA Streamline leaves you measurably better off.
Break-even: The number of months of savings needed to repay your closing costs.
Frequently Asked Questions
Can I drop FHA mortgage insurance without refinancing?
Only if your loan is old enough. Loans closed on or after January 1, 2001, with case numbers before June 3, 2013, may cancel automatically. Newer loans generally cannot cancel by equity alone. Ask your servicer to confirm which rule applies to you.
How much equity do I need to refinance out of FHA insurance?
You need a new loan at or below 80% of the new appraised value to avoid mortgage insurance entirely. Less equity is still possible, but the conventional loan will carry PMI. Equity is measured against the new appraisal, not your purchase price.
Will refinancing FHA to FHA remove the premium?
No. A new FHA loan carries its own premiums, including on a Streamline. Only a move to a loan without FHA insurance ends it.
Does appreciation cancel my FHA insurance?
Not by itself. HUD does not consider new appraised values for cancellation on older loans, and post-2013 loans do not cancel on equity. Appreciation helps because it lowers your LTV on a refinance.
Is PMI better than FHA insurance?
It can be, mostly because PMI can end as your equity grows. Whether it costs less depends on your credit, your equity and the loan. Compare both on a Loan Estimate.
If you are weighing a refinance and want the break-even run on your own numbers, Lendmire can help you compare the programs on the same home. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2013-04 (hosted at FHFA)
2. HUD Handbook 4000.1 (MIP Cancellation excerpt, HSG ML 2025-06)
3. HUD Answers: How long is MIP collected (pre-June 3, 2013 case numbers)
4. CFPB
6. CFPB HPA examination manual
8. 2023 letter
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can an FHA Borrower Refinance Out of Mortgage Insurance in Year One? · Can an FHA Borrower Drop Mortgage Insurance With a VA Loan? · Does a 15-Year FHA Loan Mean Lower Mortgage Insurance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.