The Quick Read: FHA mortgage insurance is part of the FHA loan contract, so it ends when that loan is paid off. A conventional cash-out refinance pays off the whole FHA loan with a new conventional first mortgage. No FHA premium is charged on the new loan. Private mortgage insurance may still apply, depending on how much equity you keep.
What Actually Happens to the Insurance
The insurance does not get “removed.” It disappears because the loan it belongs to disappears.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
FHA charges two premiums. The first is an upfront premium of 1.75% of the base loan, usually financed into the balance. The second is an annual premium, between 0.15% and 0.75% of the balance depending on term, loan amount, and LTV. LTV, or loan-to-value, is the loan balance divided by the home’s value.
Duration is the part that traps people. On a thirty-year FHA loan above 90% LTV at the start, the annual premium lasts for the full term. At or below 90%, it ends after eleven years. HUD’s Handbook 4000.1, Appendix 1.0 lays out both cases. Many borrowers started with a small down payment, so many are in the full-term group. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
That is why people refinance out. Fannie Mae’s consumer site says private mortgage insurance generally can be removed once you reach 20% equity, while FHA mortgage insurance is more complicated and may involve refinancing.
Here is the catch. A new conventional loan with less than about 20% equity left may carry PMI of its own. You are swapping one insurance for another, or for none, depending on the numbers.
The FHA Cash-Out vs. the Conventional Cash-Out
Both loans give you cash from equity. They treat mortgage insurance very differently.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Reaches up to | 80% LTV | Typically a cap near 80% on a one-unit home |
| FHA premium | Yes, a new upfront and annual premium | None |
| Other insurance | None | PMI if equity left is thin |
| Ownership rule | Owned and occupied 12 months | Set by the lender and Selling Guide |
An FHA cash-out keeps you inside the FHA system, premiums included. That is the point of the conventional route.
Conventional caps vary with property type and credit. Caps are lower for multi-unit homes and second homes. All figures are subject to lender guidelines and full file review.
How the Swap Works, Step by Step
Here is the sequence, from your FHA loan to your first conventional payment.
1. Gather the FHA loan facts. You need the note date, the original LTV, and the current payoff. If your case number was assigned before June 3, 2013, different cancellation history may apply, so confirm which group you are in.
2. Test your equity. The new loan must pay off the FHA balance, cover any financed costs, and deliver your cash. The total must fit under the conventional maximum LTV. If equity is thin, a cash-out cannot do the job.
3. Check the loan’s age. Lenders want a minimum age on the mortgage being paid off. Your loan officer confirms the exact requirement against the current guidelines.
4. Underwriting. The lender looks at credit score, debt-to-income ratio (your monthly debts divided by gross monthly income), reserves, and LTV. Most files run through an automated system. Fannie Mae’s own eligibility document says reserves apply to cash-out files with a DTI above 45%. Your new housing payment becomes principal, interest, taxes, insurance, and any PMI. No FHA premium appears.
5. Appraisal. The value sets your LTV, and the LTV sets your maximum loan. Some refinance files qualify for a value-acceptance option that skips an appraisal. That depends on the automated findings. Do not count on a waiver.
6. Disclosures. You receive a Loan Estimate and later a Closing Disclosure. Compare them line by line.
7. Payoff and closing. The old FHA servicer is paid off. The FHA premium obligation ends with the FHA case.
8. After closing. If the new loan carries PMI, federal rules govern its end. More on that below.
Where the Savings Can Disappear
Dropping an FHA premium can lower your housing payment. Several things can eat that saving.
- A bigger balance. You are borrowing more, since you are taking cash out.
- Pricing adjustments. Fannie Mae’s guide says a loan-level price adjustment applies to certain cash-out refinance transactions based on LTV and credit score. Those costs get built into the pricing.
- New PMI. Thin equity brings it back.
- Closing costs. A refinance restarts them. Rolling them into the loan lowers what you pay at the table but adds cost over time through extra interest.
Your old upfront premium does not come back either. HUD’s fact sheet says a refund of the old premium may be applied toward the new upfront premium only when you refinance into a new FHA loan. A conventional refinance earns no credit. The premium you paid simply does not carry over.
The only honest test is to put your current statement beside the Loan Estimates and compare. Run the same comparison on total cost over the time you expect to keep the home, not just the monthly figure.
Where the General Rule Breaks
Some situations change the answer.
Your loan is close to its end date. If your FHA annual premium is about to cancel, say you are nearing year eleven on a loan that started at or below 90% LTV, replacing the loan may save little. You would restart closing costs to escape a premium that was already leaving. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Equity is short. Under about 20% equity left, the new loan may need PMI. If the balance you would need is above the conventional loan’s maximum, the file may not qualify at all.
You do not need cash. A limited cash-out refinance, sometimes called rate-and-term, allows only incidental cash back. If you only want out of FHA insurance, that route may fit better. An FHA Streamline refinances an existing FHA loan with no appraisal, but the premium continues, so it does not solve the insurance problem.
Occupancy and unit count. Maximums drop for multi-unit homes and second homes. Occupancy decides the leverage.
You expect 20% equity to cancel FHA insurance. For loans with case numbers on or after June 3, 2013, cancellation follows the HUD duration table, not a 20% or 78% equity mark. The 2023 annual premium cut lowered the rate for most new loans. It did not end the insurance.
Credit events. HUD waiting periods (two years from a Chapter 7 discharge, three from a foreclosure) are HUD rules. Conventional lenders set their own.
How the New Loan’s PMI Ends
Say the new loan does carry PMI. The CFPB explains the exit. You may ask to cancel when the balance reaches 80% of the home’s original value. The servicer must end it automatically when the balance reaches 78% of the original value, and in any case the month after you reach the midpoint of the loan’s amortization schedule. Fannie Mae and Freddie Mac may set their own guidelines on top.
That is a clear exit. On a thirty-year FHA loan above 90% LTV, the annual premium lasts for the full term, while at or below 90% it ends after eleven years. For a borrower in the first group, this difference is often the real prize of the swap.
Who This Fits, and Who Should Wait
It tends to fit if:
- You have meaningful equity, well above the amount the new loan needs to clear the cap.
- Your credit has improved since you took the FHA loan.
- Your FHA premium runs for the full term.
- You have a real use for the cash.
It tends to fit poorly if:
- Your equity is thin.
- Your FHA premium is about to end.
- Your credit is weaker than when you started.
- You want cash only to pay down credit cards. The Federal Reserve notes that many financial advisers caution against cash-out refinancing to pay down unsecured debt. You turn short-term debt into long-term debt, secured by your home.
Sensible uses tend to be renovations that add value or paying off higher-cost debt with a plan to avoid running it back up.
Alternatives Worth Weighing
Cash-out is one option among several. Waiting is one, if your premium is about to cancel. A limited cash-out refinance is another, if you want out of the insurance without extra cash. A second lien keeps your existing FHA loan in place. That trades the insurance question for a second payment. The right choice depends on your numbers, not on a rule of thumb.
Key Terms Defined
Mortgage insurance premium (MIP): The FHA’s insurance charge, paid upfront and annually, which protects the lender if you default.
Private mortgage insurance (PMI): Insurance on a conventional loan, usually required when equity is under about 20%.
LTV (loan-to-value): Your loan balance divided by the home’s value.
Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference in cash.
Loan-level price adjustment (LLPA): A pricing add-on for certain cash-out loans based on LTV and credit score.
Limited cash-out refinance: A refinance that allows only small, incidental cash back.
Questions to Ask Before You Apply
- What is the maximum LTV for my property type and occupancy?
- How old must my current loan be?
- Will my new loan carry PMI, and when can it end?
- What pricing adjustments apply to my credit and LTV?
- What is my break-even point after closing costs?
- What reserves and documents will you need?
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. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders; it does not lend directly, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a conventional cash-out end my FHA mortgage insurance?
Yes, because the FHA loan is paid off. The insurance belongs to that loan, so it ends with it. The new loan carries no FHA premium. It may carry PMI if your remaining equity is thin, subject to lender guidelines.
Do I get my FHA upfront premium back?
No. A refund credit exists only when you refinance into a new FHA loan, and it is applied to the new premium, not paid as cash. A conventional refinance earns nothing back, so the old upfront premium does not carry over.
Can I just cancel FHA insurance at 20% equity?
Not on loans with case numbers on or after June 3, 2013. Cancellation follows the HUD duration table: eleven years if you started at or below 90% LTV, the full term above that. Equity growth alone does not cancel it. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Is a conventional cash-out always cheaper than an FHA cash-out?
No. Dropping the FHA premium helps, but pricing adjustments, a larger balance, new PMI, and closing costs can offset it. Compare actual Loan Estimates for the same borrower and the same cash amount.
What if I only want out of the insurance and do not need cash?
Ask about a limited cash-out refinance, which permits only incidental cash back. It can replace the FHA loan without a larger balance. Eligibility depends on equity, credit, and the lender’s review.
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.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Handbook 4000.1, Appendix 1.0 (attached to Mortgagee Letter 2015-01)
2. Fannie Mae consumer PMI page
3. Fannie Mae DU Standard Eligibility Requirements
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
5. HUD FHA Homeowners Fact Sheet
6. HUD Handbook 4000.1 excerpt (MIP cancellation)
7. 80% of the home’s original value
8. Federal Reserve refinancing guide
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How an FHA Cash-Out Lender Reads Condo Litigation · How an FHA Cash-Out Works With a Non-Borrowing Spouse · Cash-Out Refinance Lenders to Move From FHA to Conventional With 20 Percent Equity
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.