How the Annual MIP Clock Works on an FHA Cash-Out Refinance

The Quick Read: An FHA cash-out refinance starts a new annual mortgage insurance clock, because the cash-out is a new loan. Duration is set by the loan-to-value ratio (LTV) at origination. An FHA cash-out loan at 80% LTV or below generally lands in the shorter tier, where the premium runs for eleven years on a term longer than fifteen years. The old loan’s history does not carry over. Details are subject to lender guidelines and full file review.

What Is Annual MIP, and How Is It Different From Upfront MIP and PMI?

Annual MIP is a mortgage insurance premium that protects the lender if the loan defaults. It is billed in monthly installments and folded into the housing payment. Upfront MIP is a one-time premium, 1.75% of the base loan on the FHA programs Lendmire places, and it can be financed into the loan.

PMI is a different animal. It applies to conventional loans, and it is usually cancelable once equity builds. Current FHA annual MIP does not cancel on equity alone. It ends on a schedule, and the schedule depends on the loan you took out.

Across the wholesale programs Lendmire places FHA loans with, the annual premium runs between 0.15% and 0.75% of the balance. Where a file lands depends on term, loan amount, and LTV. That is a program fact, not a price quote.

How Does the Clock Get Set?

The clock is set at origination, and three inputs drive it.

1. Case number date. HUD’s rule for case numbers assigned on or after June 3, 2013 is the one that applies to nearly every loan being written now. Older FHA loans follow earlier duration rules.

2. LTV at origination. Per HUD’s FHA Answers page, if LTV was above 90%, annual MIP is collected until the end of the loan term or 30 years, whichever comes first. If LTV was 90% or less, it is collected until the end of the term or 11 years, whichever comes first. HUD points to its own published handbook appendix as the controlling text.

3. Loan term. The eleven-year tier described here is the one that applies to terms longer than fifteen years. Shorter terms carry their own premium tables.

Here is the plumbing in one line: the clock starts at closing of the new loan, counts forward, and stops at the earlier of the end date or the payoff. Month one is the first month of the new loan’s payment schedule.

Why a Cash-Out Lands in the Shorter Tier

HUD capped FHA cash-out financing at 80% of adjusted value. Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV to 80% for case numbers assigned on or after September 1, 2019. HUD’s press release lays out the history: the cap went from 95% to 85% in 2009 and from 85% to 80% in 2019. HUD’s stated reason was a stronger equity position on cash-out loans.

Put the two rules side by side. A compliant FHA cash-out cannot exceed 80% LTV. That sits under the 90% line. So the new loan falls in the tier where annual MIP ends after eleven years rather than running the full term. That is an inference from the two HUD sources, not a single HUD sentence, so the borrower’s file and the lender’s guidelines control the final answer. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Note the measure: the 80% is figured against adjusted value, which can differ from the raw appraised number. The base loan plus any subordinate liens must fit under it.

What Restarts and What Carries Over

This is where borrowers get surprised. The old loan’s insurance history does not follow you.

A homeowner in year nine of an eleven-year schedule is the clearest example. Keeping the loan means the premium ends in about two years. A cash-out starts a fresh eleven-year count on a bigger balance. That is the tradeoff. It is not a trap, but it is a real cost to weigh against whatever the cash is for.

Step by Step: How the Cash-Out Is Put Together

1. Eligibility gate. The home must have been owned and occupied for 12 months before the case number is assigned, and it must be your principal residence. Across the programs Lendmire places, the FHA cash-out reaches up to 80% LTV on a home that meets both requirements. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

2. Appraisal sets the ceiling. The adjusted value drives the maximum loan. A light appraisal shrinks the cash available and can move the whole file.

3. Payoff and liens. The payoff on the old loan can include unpaid MIP, late charges, and escrow shortages. Any subordinate lien counts toward the 80%.

4. New loan, new MIP. The upfront premium is assessed on the new base loan. HUD’s upfront premium payment guide describes the lender-side remittance process. The annual premium is recalculated on the new balance and billed monthly.

5. Disclosures. This is a consumer mortgage, so the Loan Estimate and Closing Disclosure apply. Read the mortgage insurance lines on both.

You can read more on Lendmire’s FHA cash-out refinance program page, including how the program reaches the 80% ceiling.

How the Payment Math Works (Without the Dollars)

The annual premium formula is simple. Take the balance, apply the annual rate for the tier, and divide by twelve. That is the monthly installment.

Two things move that number on a cash-out:

• A bigger balance. Cash taken out raises the base, so the premium line rises with it.
• A longer runway. The restart means more months of premium, even if each month is lower than it would be on a 90%-plus loan.

The premium also falls as the balance is paid down. It does not vanish before the end date, though.

HUD lowered annual rates for case numbers endorsed on or after March 20, 2023, under Mortgagee Letter 2023-05. The letter changed rates, not durations. Today the annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. The current premium tables are published in HUD’s FHA Single Family Housing Policy Handbook.

The Upfront Premium and the Refund Credit

There is one offset. A refund credit is available when a borrower refinances an FHA-insured mortgage into another FHA-insured mortgage within three years. The credit reduces the new loan’s upfront premium. It is a credit, not cash. It does not apply if the exit is to a conventional loan. HUD’s handbook is the primary source for these terms.

Where the General Rule Breaks

Named edge cases worth knowing:

• Case numbers before June 3, 2013. Earlier duration rules apply. Do not apply today’s tiers to an old loan.
• Loans above 90% LTV. A standard FHA cash-out does not reach this level because of the 80% cap. On a thirty-year loan above ninety percent LTV, the annual premium lasts for the term.
• Hawaiian Home Lands (Section 247). These loans are excluded from the 80% change and from the 2023 rate cut, per the mortgagee letters.
• Streamline refinances. A separate product, not a cash-out. It keeps the premium going and does not give you equity access.
• Occupancy. Principal residence only. A rental or second home does not qualify.
• Free-and-clear and inherited homes. HUD’s older reference guide treats both as potentially eligible. That page still shows the retired 85% cap, so use it for occupancy only. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

The Decision in Practice

The question is not whether annual MIP exists. It is whether the cash you need is worth a new clock.

Conventional cash-out can end mortgage insurance sooner, but it brings a new set of terms and its own closing costs. Run both sets of closing costs before comparing. Credit and ratio overlays also differ. FHA base ratios sit at 31/43, with documented compensating factors reaching 40/50 at the top tier, and the automated finding governs most files.

Mistakes That Derail Files

• Assuming the old loan’s clock carries over.
• Assuming 20% equity cancels FHA MIP. On current loans, it does not.
• Planning around 85% LTV. The cap is 80%.
• Forgetting that upfront MIP and subordinate liens eat into that 80%.
• Skipping the 12-month occupancy documentation.
• Treating the refund credit as cash. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Key Terms Defined

Annual MIP: a monthly mortgage insurance premium on an FHA loan, based on balance, term, and LTV.

Upfront MIP: a one-time premium on the base loan, usually financed.

Adjusted value: the value HUD uses to measure the loan against the cap, which can differ from raw appraised value.

Original LTV: the loan-to-value ratio at origination, which sets how long annual MIP lasts.

Case number: the HUD identifier assigned to a loan, and the date it was assigned decides which duration rules apply.

Refund credit: a reduction in the new loan’s upfront premium when refinancing FHA-to-FHA within three years.

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. Call 828-256-2183 to talk through your file. 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 serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD FHA Answers: How long is MIP collected (case numbers on or after June 3, 2013)

2. HUD Mortgagee Letter 2019-11

3. HUD Archives press release on cash-out risk

4. HUD upfront premium payments and refunds guide

5. HUD Mortgagee Letter 2023-05

6. HUD Archives HOC Reference Guide p. 2-19