How Much Conventional Loan PMI Cancellation Saves Over FHA Insurance

The Quick Read: Conventional PMI ends on a schedule the borrower can influence, while FHA annual mortgage insurance on a low-down-payment loan stays for the full loan term. The savings are the premium stream you stop paying after cancellation, minus any refinance cost to exit FHA, and FHA’s financed upfront premium has no conventional counterpart. The size of that gap depends on your loan amount, credit profile, down payment and how long you keep the loan.

That is the whole logic. The rest of this article shows how each side works, where the general rule breaks, and how to decide.

How Do the Two Types of Mortgage Insurance Differ?

They differ in who sets the end date. Conventional PMI follows a legal cancellation schedule tied to your balance. FHA mortgage insurance follows rules set when the loan is made, based on term, original LTV and loan amount, and it does not respond to equity on current loans.

Across the wholesale programs Lendmire places FHA files with, the annual premium sits within that range and moves with term, loan amount and LTV. Subject to lender guidelines, FHA allows financing up to 96.5% with a 3.5% minimum investment at a 580 decision score or higher. Many borrowers pick FHA for that flexibility, and it is a legitimate reason. The question here is what the flexibility costs later. For a deeper look at the two products at the closing table, see Lendmire’s piece FHA Mortgage Insurance vs Conventional PMI for Low Down Payments.

What Does an FHA Loan Actually Require?

Borrowers weighing the two should know the FHA side first. The FHA loan programs Lendmire arranges are for owner-occupied principal residences of one to four units. A non-occupant co-borrower is allowed, and seller contributions can reach 6% of the price. Debt ratios start at 31/43 (housing and total) with no compensating factors. Documented factors can stretch that to 40/50 at the top tier, and the automated finding governs most files. County loan limits apply.

All of that is subject to lender guidelines and full file review, and none of it is a commitment to lend. The point for this comparison: FHA’s entry terms are easier, but the insurance that comes with them is the long-tail cost.

How Does Conventional PMI Cancellation Work, Step by Step?

Conventional PMI ends through one of three paths: you request it at 80%, it terminates automatically at 78%, or you use current value after appreciation. The first two follow federal law. The third follows investor rules.

1. At closing. You receive an amortization schedule and a PMI disclosure showing the first date you can request cancellation and the date of automatic termination, as the Federal Reserve’s summary of the Homeowners Protection Act describes.

2. The 80% request. Per the CFPB, you can ask your servicer to cancel when the balance is scheduled to reach 80% of the home’s original value, or sooner with extra payments. The request must be in writing. You need a good payment history, no junior liens, and possibly proof the value has not dropped below the original value, such as an appraisal.

3. The 78% automatic path. Lenders must disclose the date PMI ends automatically, generally when the balance is first scheduled to reach 78% of original value. No request or appraisal is needed, provided you are current.

4. The midpoint backstop. A borrower who is current has PMI end by the midpoint of the amortization period, for example year 15 on a 30-year loan, per HelpWithMyBank.

5. Refund. Once PMI is cancelled, the servicer must return any unearned premium.

“Original value” generally means the lower of the contract price or the appraised value at purchase. After a refinance, it is the appraisal at that time.

The Current-Value Route

Home prices may rise faster than your schedule pays down the balance. Fannie Mae’s servicing guide has the servicer check the LTV and payment history, then confirm current value is at least the original value. Fannie Mae’s servicing guide section on terminating conventional mortgage insurance confirms 12-month and 24-month payment look-backs. Thresholds differ by property type and years of seasoning, so ask your servicer for the current numbers rather than relying on a rule of thumb.

Why Does FHA Insurance Stay So Long?

FHA’s cancellation rules changed in 2013. For case numbers assigned on or after June 3, 2013, annual premium duration depends on the original LTV. If original LTV is above 90%, annual premium runs for the loan term. If it is 90% or less, it runs 11 years.

Older FHA loans behaved differently. A borrower who hears “FHA drops at 78% like PMI” is hearing old advice. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Two other facts matter. FHA’s upfront premium is 1.75% of the base loan for most mortgages. And the annual premium was cut by 30 basis points for loans endorsed on or after March 20, 2023. That cut lowered the annual charge. It did not change duration, and it did not touch the upfront premium. So “FHA got cheaper” is true monthly, but the exit rules are the same.

How Much Does Cancellation Actually Save?

The saving is the premium you stop paying after the conventional cancellation point, minus the cost of leaving FHA if you ever do. There are three pieces, and no honest single dollar figure covers all borrowers.

Piece one: the upfront premium. The FHA borrower pays 1.75% of the base loan, usually rolled into the balance. That means interest accrues on it too. It is not refunded when the loan is later refinanced into conventional.

Piece two: the premium stream after cancellation. Picture two buyers with the same price and the same 3.5% down payment. The conventional buyer pays PMI until the balance reaches the cancellation point, then stops. The FHA buyer keeps paying annual insurance for the loan term. Every month past the conventional cancellation date is a month the FHA borrower pays and the conventional borrower does not. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

Piece three: the cost to exit FHA. The FHA borrower’s equity-based exit is a refinance, usually into conventional. A new loan at 80% LTV or below of the new appraisal can start with no PMI requirement. But the refinance carries its own closing costs, resets original value to the new appraisal, and replaces your loan terms. Whether it pays off depends on closing costs, your new terms, and how long you stay.

That is why the answer shifts by person. Lendmire’s team can line up both structures on a Loan Estimate for your file so the comparison uses your actual numbers.

A Scenario Without Dollar Figures

Consider a buyer at a 96.5% LTV purchase who plans to stay in the home for a decade or longer. On conventional, PMI is paid for a limited stretch and then ends. On FHA with under 10% down, annual insurance runs the whole term, plus the financed upfront premium on day one. The longer the stay, the more the stream after cancellation dominates. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

Now flip it. A buyer with a score near the program floor may find conventional PMI is priced steeply, or that conventional is not available at that leverage. If that buyer expects to sell or refinance within a few years, FHA’s insurance may cost less over the period actually held. Holding period and credit tier are the deciding variables, not the loan type’s reputation.

Where Does the General Rule Break?

Several situations change the picture. Each is worth checking before you assume conventional wins.

• High-risk loans. The 80% and 78% federal rules do not apply to loans designated “high-risk.” Those face final termination at the amortization midpoint, per the CFPB’s HPA examination procedures.
• Property type and occupancy. The legal rules cover single-family principal residences closed on or after July 29, 1999. Investor current-value rules are tighter for two-to-four-unit homes. An FHA purchase can be one to four units, so a multi-unit buyer should check the conventional cancellation terms for that property type first.
• Junior liens. A HELOC or second mortgage can block the 80% request.
• Value decline. A drop below original value can block cancellation on the original-value path.
• Payment history. Cancellation depends on being current. The investor test looks back 12 and 24 months for late payments.
• Lender-paid mortgage insurance. Some conventional loans build the insurance into the loan terms rather than charging a separate monthly PMI line. In general, that structure cannot simply be cancelled, and the exit is a refinance. Ask which structure you are being offered.
• Pre-2013 FHA loans. These can fall under the earlier 78% rule, as noted above.
• FHA streamline refinances. The Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but the premium continues. It lowers paperwork, not the insurance. The FHA rate-and-term refinance reaches 97.75% on a principal residence occupied for the previous twelve months, and it also carries FHA insurance.

Common Mistakes Borrowers Make

Assuming PMI drops by itself. Automatic termination follows the original schedule and requires you to be current. The 80% request is a written process with conditions. Check that your servicer has actually stopped billing.

Assuming appreciation ends PMI. The legal request path is tied to original value. Current-value termination is an investor process with seasoning requirements and a valuation.

Assuming extra FHA payments end the premium. They lower the balance the premium is charged on. They do not end the duration.

Assuming the 2023 FHA cut closed the gap. It reduced the annual charge only. Duration and upfront premium are unchanged.

Assuming a refinance resets nothing. It resets original value to the new appraisal and adds new closing costs.

A Practical Checklist for Requesting PMI Cancellation

1. Find your PMI disclosure or call your servicer for the projected 80% and 78% dates.

2. Confirm you are current and have no second lien.

3. Send a written request once you reach the 80% point, or earlier if extra principal payments got you there.

4. Ask whether a new valuation is needed to show value has not fallen.

5. If your home has appreciated, ask whether current-value termination applies to your loan and what seasoning is required.

6. After approval, verify the next statement shows no PMI and ask about any unearned premium refund.

If a servicer stalls, put the request in writing again and keep copies. The federal summary linked above lists the disclosures you are owed.

When FHA Still Makes Sense

FHA is not the wrong answer. It tends to fit when credit is near the program floor, when the down payment is the limiting factor, or when the borrower expects to refinance or sell before the insurance difference compounds. It also fits when conventional pricing at your score and leverage is steep. Putting 10% down or more on an FHA loan moves annual insurance from the loan term to 11 years, which is a meaningful break point if you can reach it. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

The comparison flips toward conventional when your score and down payment support reasonable PMI pricing and you plan to hold long enough to benefit from cancellation.

Key Terms Defined

Original value: The lower of the purchase price or the appraised value when the loan was made, used to measure your equity for PMI rules.

Automatic termination: The point, generally 78% of original value on schedule, where PMI ends without a request if you are current.

MIP (mortgage insurance premium): FHA’s insurance charge, made up of an upfront premium and an annual premium.

Seasoning: The minimum time you must have held the loan before a current-value request counts.

Base loan amount: The loan before the financed upfront premium is added.

Lender-paid mortgage insurance: Insurance built into the loan terms instead of billed as a separate PMI line, generally not cancellable.

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. Program details 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

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.

References

1. Federal Reserve – Homeowners Protection Act background and summary

2. CFPB – When can I remove PMI

3. HelpWithMyBank (OCC) – PMI removal

4. Fannie Mae Servicing Guide B-8.1-04

5. CFPB’s HPA examination procedures