How Much a Conventional Loan Saves Over FHA After PMI Cancels

The Quick Read: Conventional loan savings show up in the years after private mortgage insurance (PMI) drops off, because most FHA mortgage insurance keeps running. Conventional PMI ends once you build enough equity. FHA’s annual premium usually lasts 11 years or the whole loan term, depending on your starting down payment. The dollar saving depends on your credit, down payment and balance, so the size is personal. The direction is not.

What Are You Really Comparing?

You are comparing two different kinds of mortgage insurance. Conventional loans use PMI, which can be cancelled. FHA loans use a mortgage insurance premium (MIP), which is paid into a federal insurance fund and generally cannot be cancelled on newer loans.

The title says “after PMI cancels.” Here is the catch: on most FHA loans, nothing cancels. So the real question is what the household saves once conventional PMI ends while FHA insurance would have kept going.

Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. Remember that FHA loans with a down payment under 10% start above 90% loan-to-value (LTV) on day one. That starting LTV sets how long FHA insurance lasts.

Key Terms Defined

PMI (private mortgage insurance): Insurance on a conventional loan with under 20% down. It protects the lender, not you. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

MIP (mortgage insurance premium): FHA’s version, with an upfront piece and a monthly annual piece.

LTV (loan-to-value): Your loan balance divided by the home’s value. A 96.5% LTV means you put down 3.5%. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Original value: The lesser of the purchase price or the appraisal at purchase. Automatic PMI rules measure against this, not today’s value.

Amortization schedule: The payment timetable showing how the balance shrinks. Automatic cancellation follows this schedule.

How Does Conventional PMI Actually Cancel?

PMI ends three ways, and each has its own trigger. Federal law sets the baseline, and the Consumer Financial Protection Bureau lays out the steps for a primary residence.

1. You ask at 80%. When your balance is scheduled to reach 80% of original value, you can request cancellation in writing. Extra principal payments can get you there sooner.

2. The servicer ends it at 78%. When the schedule says your balance hits 78% of original value, the servicer must terminate PMI automatically, provided you are current on payments.

3. The midpoint backstop. The servicer must end PMI the month after the midpoint of your amortization schedule, even if you never reached 78%.

A request at 80% has conditions. You need a good payment history and no second mortgage or home equity line on the property. The servicer may also want proof the value has not dropped, and an appraisal is one example of that proof.

Two timing facts surprise people. First, the automatic date follows the original schedule. Extra payments do not move it. They only help your request at 80%. Second, a late payment delays automatic termination until you are current.

Some servicers also allow removal based on today’s value instead of original value. Investor guidelines for those requests usually require seasoning and a tighter LTV test than the 80% request. Rules differ by servicer, so ask yours directly.

Why FHA Insurance Doesn’t Cancel the Same Way

FHA duration is locked in at closing by your starting LTV. HUD’s premium schedule ties the length of the annual premium to original LTV and term. On a thirty-year loan above 90% LTV, the annual premium lasts the full term. At or below 90%, it ends after eleven years. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Reaching 20% equity does nothing. Neither does a higher appraisal. Neither do extra payments, which lower your balance but do not shorten the schedule.

The premium itself has two parts. HUD’s mortgagee letter sets the upfront premium at 1.75% of the base loan. Lenders usually finance it, so it raises your balance. The annual premium runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV, and you pay it monthly.

Older FHA loans are the exception. FHA loans with case numbers assigned before June 3, 2013 had a balance-based cancellation at 78%, and HUD’s guidance on those loans varies by term and LTV. If your FHA loan is from that era, check your paperwork. Most borrowers buying today are not in that group.

Where Do the Savings Come From?

The savings are the sum of three pieces. None needs a rate or payment figure to understand.

1. No upfront premium. Conventional loans carry none or very little at closing. FHA’s 1.75% sits in your balance and accrues interest for as long as you hold the loan.

2. A credit-sensitive monthly charge that eventually stops. PMI pricing moves with your score and down payment. The CFPB notes that PMI is generally cheaper than FHA for borrowers with good credit.

3. The end date. Once PMI cancels, the whole insurance line leaves your payment. On FHA it stays.

Picture a buyer who puts 5% down on a conventional loan against one who puts 3.5% down on FHA. Early on, both pay monthly insurance, and the conventional buyer may pay less if credit is strong. Years later, the conventional balance hits the 80% mark through amortization, a request, or both. The PMI line disappears. The FHA buyer still pays the annual premium, because the loan started above 90% LTV. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

That gap, every month for the rest of the term, is the saving. It grows with time in the home. Hold the loan a short while, and it barely registers.

(Honestly, this is why the “how long will I stay?” question matters more than any single quote.)

When Conventional Does Not Save

Conventional is not always cheaper. The same CFPB page says PMI is generally cheaper “for borrowers with good credit,” and the flip side holds. Lower scores can make PMI expensive, and a conventional file asks more of your credit and debt ratios.

FHA is built for the other end. The base ratio pair is 31/43 (housing / total debt), and documented compensating factors can reach 40/50 at the top tier. The automated underwriting finding governs most files. Sellers can also contribute up to 6% of the price.

Here is a plain way to read it:

The mid-range case is a genuine toss-up. Ask for both quotes and compare total insurance paid over the years you expect to hold the loan. Not just the first-year payment.

The FHA-to-Conventional Switch

If you already have an FHA loan, a conventional refinance is how most borrowers leave MIP behind. It works because the new loan resets “original value” to a fresh appraisal. Equity from appreciation finally counts.

Run it as a short checklist:

1. Get a value estimate. If the new balance is 80% or less of the appraised value, the new loan can start without PMI.

2. Check the file. Credit, debt ratios, occupancy, property type and reserves all decide the outcome, subject to lender guidelines.

3. Count the costs. A refinance brings new closing costs and an appraisal.

4. Compare the options. Weigh the insurance you would stop paying against those costs, and against the new loan’s terms.

5. Check your timeline. If you plan to sell soon, the savings may not catch up.

Two traps are worth knowing. Your old FHA upfront premium is not refunded on a conventional payoff. A partial refund credit generally applies only when the new loan is also FHA. And the FHA Streamline, which skips the appraisal and needs a net tangible benefit, keeps the premium going. It lowers effort, not insurance.

An FHA rate-and-term refinance with an appraisal can reach 97.75% on a principal residence you have occupied for the previous twelve months. That keeps you in FHA. It is not the exit.

Edge Cases Where the Rule Bends

• Starting at 90% LTV or below on FHA. Annual premium ends after eleven years instead of lasting the term. Extra principal does not shorten it.
• High-risk conventional loans. The 80% request and 78% automatic rules do not apply. Termination comes at the midpoint.
• Second liens. A home equity line or second mortgage blocks a cancellation request.
• Lender-paid mortgage insurance. Some conventional loans bake the cost into the loan terms instead of charging monthly PMI. That version generally can’t be cancelled, and the exit is a refinance. Confirm this on your own loan documents.
• Second homes and investment properties. Occupancy decides leverage. FHA is for your principal residence only.
• Pending bills in Congress. Proposals to change FHA premium cancellation exist. Do not plan around them until they are law.

Common Myths

“FHA insurance drops off at 20% equity.” Not on a thirty-year loan that began above 90% LTV. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

“A new appraisal removes FHA insurance.” It does not. A new appraisal only helps if you refinance.

“PMI drops automatically at 80%.” At 80% you request it. Automatic comes at 78% on schedule.

“Mortgage insurance protects me.” It protects the lender.

How to Decide in Practice

Start with three questions. How long will you hold this loan? What is your credit tier today? How much can you put down?

If you will stay many years and your credit is strong, conventional likely saves the most after PMI cancels. If you need FHA’s flexibility to buy now, that is a fine start. Many borrowers buy on FHA and revisit the switch once equity and credit improve.

Ask for a Loan Estimate on each option. Compare total insurance over your expected stay, not just the monthly line. Program figures here are subject to lender guidelines and full file review, and none of this is a commitment to lend.

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.

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. CFPB – When can I remove PMI from my loan?

2. HUD Appendix 1.0 – MIP duration by original LTV

3. HUD Mortgagee Letter 2023-05 (with Appendix 1.0)

4. HUD FHA Q&A – MIP duration for older loans

5. CFPB – What is mortgage insurance and how does it work?