The Quick Read: An FHA cash-out refinance carries three layers of cost: an upfront mortgage insurance premium, a monthly annual premium, and closing costs. Planning to leave FHA mortgage insurance later adds a fourth layer, because the exit is its own refinance with its own closing costs. For most cash-out loans, the annual premium runs eleven years on a thirty-year term and then ends by itself. That makes an early exit worth only the years you would have left to pay.
Key Takeaways
- An FHA cash-out is a brand-new FHA loan. It gets its own upfront premium and its own annual-premium clock.
- The upfront premium is 1.75% of the base loan, and it is usually financed into the balance.
- The cash-out tops out at 80% of the home’s appraised value. In practice, that puts most of these loans in the eleven-year premium tier.
- An exit saves you only the premium years that remain, minus the cost of a second refinance.
- Cashing out raises your balance, which pushes back the day you have enough equity to leave.
What an FHA Cash-Out Really Is
An FHA cash-out replaces your current mortgage with a new FHA-insured loan that is larger than what you owe. The difference, after costs, comes to you as cash. The loan is for your principal residence only.
Lendmire’s FHA cash-out refinance program works the way the wholesale programs it places files with work. You must have owned the home and lived in it for 12 months before the case number is assigned. The loan reaches 80% of the home’s value at most. Ratios start at 31/43 for housing and total debt with no compensating factors. Documented strengths can stretch them to 40/50 at the top tier. The automated finding governs most files. Every figure is subject to lender guidelines and full file review.
Now the term that confuses people. FHA calls its insurance MIP, short for mortgage insurance premium. Conventional loans use PMI, short for private mortgage insurance. The names sound alike, but the removal rules do not match. Equity alone does not cancel MIP on a newer FHA loan.
“Planning an MIP exit” really means two questions. How long will the new annual premium run? And is a later move to a non-FHA loan realistic? The rest of this article prices both.
Key Terms Defined
Upfront premium (UFMIP): a one-time insurance charge equal to 1.75% of the base loan, usually added to the loan balance instead of paid in cash.
Annual premium: the ongoing insurance charge, collected monthly with your payment. It runs between 0.15% and 0.75% of the balance a year, depending on term, loan amount, and LTV.
LTV (loan-to-value): the loan balance divided by the home’s appraised value. A lower LTV means more equity.
CLTV (combined loan-to-value): the same test, but it counts every loan secured by the home, including a second mortgage or HELOC that stays in place.
Base loan: the loan amount before the financed upfront premium is added.
Seasoning: a required waiting period, such as owning and living in the home for 12 months before a cash-out.
MIP exit: ending FHA mortgage insurance, either by letting the premium run its course or by refinancing into a loan that has none.
What Does It Cost, Layer by Layer?
Each cost hits you in a different way. Some you pay at the table, some you finance, and some come monthly. This table sorts them.
| Cost layer | How it works | How you pay |
|---|---|---|
| Upfront premium | 1.75% of the base loan | Usually financed |
| Annual premium | 0.15%–0.75% of balance, by term, amount, LTV | Monthly, with payment |
| Closing costs | Origination, title, appraisal, prepaids | Cash or from proceeds |
| Interest on financed premium | The premium raises your balance | Monthly, built into payment |
| Second refinance (exit) | A full set of closing costs again | At the exit |
Two points matter here. First, the financed premium is not free money. It raises your balance, and you pay interest on it for as long as the loan lasts. Second, the Loan Estimate and Closing Disclosure show these costs in standard boxes. Loan costs split into services you can shop for and services you cannot. Compare those boxes line by line before you commit.
Closing costs on a refinance can be a meaningful chunk of the cash you are pulling out. Origination charges and title fees tend to be the largest lines, according to the CFPB’s closing-cost review. Your own Loan Estimate holds the real numbers.
How the 80% Cap Sets Your Annual MIP Clock
The cap on leverage decides how long you pay annual MIP. HUD, the agency that runs FHA, lowered the cash-out cap to 80% of appraised value in Mortgagee Letter 19-11. Its stated reason was protecting the FHA insurance fund from growing balances on cash-out loans. The cap was later folded into Handbook 4000.1, HUD’s rulebook for FHA lenders.
Next, the duration rule. For newer FHA loans, HUD ties the length of the annual premium to your LTV at origination. At 90% or below, the premium ends after eleven years. Above 90%, it lasts for the term on a thirty-year loan. HUD set this test in Mortgagee Letter 13-04, and its premium schedule letter lays out the current tiers. The test uses the loan amount before the financed upfront premium.
Put the two rules together. A cash-out cannot go above 80%. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. So a rule-compliant cash-out on a thirty-year term should land in the eleven-year tier. HUD does not say it in those words. It is the practical result of two rules. Loan term matters too: a shorter term uses a different table, and the loan amount changes the premium percentage. HUD publishes the base-loan threshold that moves a loan into the next tier.
A second mortgage or HELOC that stays on the home counts against the same cap. Your new base loan plus any remaining liens must fit under 80% combined.
How the Loan Gets Underwritten, Step by Step
Here is the order a lender works through, based on how Lendmire sees these files move through the wholesale programs it uses.
1. Title and occupancy. At least one borrower holds title. You have owned and lived in the home for 12 months before the case number.
2. Payment history. The lender reviews your recent mortgage payments. Wording on how many late payments are tolerated varies by lender, so ask early.
3. Appraisal. The appraised value sets the 80% cap. If you bought the home recently, older HUD guidance points to the lesser of appraised value or the original price, as the HUD refinance reference describes. Treat that as a pointer, not a final rule.
4. Maximum loan. Take 80% of value. Subtract any lien that stays. That is your ceiling on the base loan.
5. Add the premium. The 1.75% upfront premium goes on top if you finance it. Your insurance-duration test ignores this add-on.
6. Net the cash. Your old payoff, closing costs, prepaids, and escrow deposits come out first. What remains is yours.
7. Credit and ratios. A 580 decision score is the floor for the wholesale programs Lendmire works with. The automated finding and ratios then decide the rest.
Appraised value, the existing balance, and payment history drive the outcome. Lender overlays can be stricter than HUD’s minimums.
A Worked Example in Percentages
Say your home appraises at 100% of value, and you owe 60% of it today. The cash-out cap is 80%, so the base loan can reach 80%. The gap before costs is about 20% of value.
The upfront premium is 1.75% of that base loan. That works out to roughly 1.4% of the home’s value, added to your balance. Your total balance lands near 81.4% of value. It is not cash, but it is debt, so interest builds on it.
Closing costs and prepaids come out of the 20% gap. Whatever remains is your cash. A borrower who nets a smaller sum than expected usually underestimated this step.
Now the exit. Your base loan started at 80%. Amortization pays the balance down slowly in the early years. To refinance into a conventional loan without private mortgage insurance, you typically need enough equity that the new balance sits well below your home’s value. Cashing out starts you at 80% instead of 60%, so you have farther to climb. Rising home values can close that gap. A flat market can leave you stuck on FHA for most of the eleven years.
The Two-Step Cost: Cash-Out Plus Exit
Think of the full price as three pieces: the upfront premium, the annual premium for the years you stay, and two sets of closing costs. Compare that with simply staying put for the full eleven years.
| Your path | Annual MIP paid | Closing costs | Verdict |
|---|---|---|---|
| Stay all eleven years | Full eleven years | Once | Simplest; premium ends alone |
| Exit in years 2–4 | Short stretch | Twice | Exit rarely repays itself |
| Exit in years 6–8 | Most of the term | Twice | Only if exit costs are small |
| Equity stalls | Full term, stuck | Once, maybe twice | Plan on staying put |
The logic is simple. A conventional exit stops the annual premium. But in the eleven-year tier, the premium stops by itself. So the exit saves only what remains after you leave, and a second refinance costs you closing costs again. The standard break-even test divides your exit closing costs by your monthly savings. The answer is how many months you need to keep the new loan. Count the new loan’s full cost in that math, including its interest rate and fees, not just the missing MIP.
Don’t count on a refund of the upfront premium either. A partial credit may exist when one FHA loan replaces another within a limited period, and it applies against the new upfront premium rather than as cash. A conventional exit gets no such credit. Ask the lender to look up your case number.
Lendmire’s piece How to Plan Your Exit From MIP After an FHA Cash-Out goes deeper on timing.
Where the General Rule Breaks
The eleven-year result holds for a typical thirty-year cash-out. These cases bend it.
- Shorter terms. A fifteen-year loan uses a different premium table. The duration and percentage change.
- Large loans. Above HUD’s published base-loan threshold, the annual premium percentage steps up.
- Older FHA loans. A loan whose case number predates HUD’s life-of-loan changes may drop its premium on a loan-to-value test. A cash-out replaces that loan with a new one. You lose the old cancellation right, and that is a real cost of cashing out.
- Remaining second liens. They count against the 80% combined cap and can shrink your cash.
- Hawaiian Home Lands loans. These are exempt from the 80% change and from annual MIP.
- Appraisal surprises. A lower value shrinks the cap and the cash.
One more point on PMI. The CFPB explains that conventional PMI can be cancelled on request, and sometimes ends automatically, under federal rules. It also notes that FHA loans have different requirements, and that FHA questions go to your servicer. That helps on the conventional side after you exit. It does not shorten your FHA premium.
Who Should Skip the MIP-Exit Plan
An exit plan is a good fit if your equity is growing, your credit is improving, and you expect to hold the home well past the break-even point. It is a poor fit in a few cases:
- You may sell or move within a few years.
- Your cash-out leaves you near the 80% cap with flat values.
- Your credit or income may not clear a conventional loan later.
- You need the cash and the FHA loan is the only program you qualify for.
In those cases, the better plan may be taking the cash, accepting the eleven-year premium, and letting it end on its own. The FHA streamline is a different tool. It refinances an existing FHA loan with no appraisal and a net tangible benefit, but the premium continues. It does not remove MIP, and it does not give you cash.
Myths vs. Facts
“MIP drops off at 80% like PMI.” Not on a new FHA loan. Those PMI rights belong to conventional loans.
“MIP is for life on every FHA loan.” Only when your starting LTV is above 90% on a thirty-year term. At 90% or below, it ends after eleven years.
“A second mortgage gives me more room.” It does not. Combined liens share the cap.
“The upfront premium comes back in cash.” At most, a limited credit may apply toward a new FHA loan. Ask your lender.
“Cash-out pays the same as before.” Cashing out starts a new clock, a larger balance, and a waiting period before your next refinance.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Your Next Step
Run both paths on paper: stay for the eleven years, or exit at a set year. Compare the upfront premium, the annual premium paid, and two sets of closing costs. 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. Share your Loan Estimate at 828-256-2183 or through its quote form. One more resource: Lendmire’s piece How Much the Annual MIP Adds to an FHA Cash-Out Payment Over Time.
Frequently Asked Questions
Does an FHA cash-out refinance cancel my existing MIP?
It replaces your old loan and its premium schedule with a new one. You pay a new upfront premium and start a new annual-premium clock. If your old loan was on a legacy equity-based cancellation, you lose that. The new loan’s premium length depends on LTV at origination.
How long will annual MIP last on a cash-out?
On a thirty-year term, usually eleven years. A cash-out is capped at 80% of value, and loans at or below 90% LTV get the eleven-year tier. Shorter terms and larger loans change the schedule, so check your Loan Estimate.
Can I remove MIP early by refinancing to a conventional loan?
Yes, if you have enough equity, credit, and income to qualify, and the savings outweigh the new closing costs. The exit also forfeits any upfront-premium credit. If your annual premium is about to end anyway, the savings may be small.
Is the upfront premium refundable?
Not in cash. A limited credit may apply when refinancing from one FHA loan to another, but whether it applies to a cash-out refinance is something to confirm with your lender. Conventional exits get no refund. Ask your lender to check your case number.
Does a second mortgage or HELOC change how much cash I get?
Yes. Any lien that stays on the home counts toward the 80% combined cap, so it reduces the room for new cash. Paying it off with the new loan can restore that room, subject to lender guidelines and full file review.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
3. HUD Handbook 4000.1 Update transmittal
5. HUD premium schedule letter (Mortgagee Letter 2023-05)
7. CFPB: When can I remove PMI
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much Equity an FHA Borrower Needs for a Conventional Cash-Out · How to Plan Your Exit From MIP After an FHA Cash-Out · How Much Cash an FHA Cash-Out Releases at the LTV Cap
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.