How to Exit FHA Mortgage Insurance Instead of an FHA Cash-Out

The Quick Read: The premium stops in only two ways. Either your loan’s category cancels it on a schedule, or you pay off the FHA loan with a non-FHA loan. An FHA cash-out refinance does not get you out. It is still an FHA loan, so it brings a new upfront premium and a new annual premium. Whether leaving FHA makes sense depends on your equity, your credit, and how long you plan to stay.

What FHA Mortgage Insurance Is (and Why It Isn’t PMI)

FHA mortgage insurance protects the lender, not you. It comes in two pieces.

The upfront premium is 1.75% of the base loan amount. Most borrowers finance it into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on the term, the loan amount, and the LTV. That is a program fact, not a price quote. It is collected in monthly installments inside your payment.

LTV means loan-to-value: your loan balance divided by the home’s value. Here is the part that surprises people. On a thirty-year loan with an original LTV above 90%, the annual premium lasts the whole term. At or below 90%, it ends after eleven years.

Conventional PMI works differently. It is cancelable once you build enough equity. FHA insurance has no equity-based off-switch on newer loans. That is why borrowers who “hit 20% equity” and call their servicer get a polite no.

Across the wholesale programs Lendmire works with, borrowers on FHA loans often ask: “I have equity now, so why am I still paying?” The answer is that the premium was set when the loan started. It follows the loan, not the house.

If you are weighing the cash-out side of this, Lendmire’s FHA cash-out refinance program page lays out how that loan is built. This article covers the alternative: ending the insurance instead of resetting it.

Step 1: Find Out Which Rule Your Loan Follows

Pull three facts from your closing paperwork or your servicer: the FHA case-number date, the original LTV, and the term. They decide everything.

Start with the older loans. HUD’s servicing policy for older loans says the annual premium cancels automatically at a set share of the original value, once you have paid the premium for at least five years. It runs on the original schedule, and HUD does not use new appraised values for it. A higher appraisal does not speed it up.

Then the newer loans. HUD changed course for case numbers assigned on or after its June 3 changeover. HUD’s mortgagee letter on the duration change says FHA collects the annual premium for the maximum duration the statute permits. Your servicer can confirm your case-number date, and the letter spells out the cutoff.

The Congressional Research Service adds the point many borrowers miss. The federal law that forces PMI cancellation does not apply to FHA premiums.

Step 2: Leave FHA by Paying It Off

If your loan is on the “full term” track, the main way out is a new loan that is not FHA. In practice that means a conventional refinance. Here is how it runs.

1. Get a current value. A conventional refinance needs a new appraisal. The new loan’s LTV decides whether you owe mortgage insurance at all.

2. Requalify from scratch. Credit, income, debts, and reserves are all underwritten fresh. FHA’s flexibility does not carry over. FHA can stretch debt ratios with documented compensating factors, and conventional underwriting is less forgiving.

3. Close and pay off the FHA loan. HUD requires the old loan’s servicer to remit premiums through the month the loan is paid in full. You owe the premium through payoff, and nothing after.

4. Check what insurance the new loan carries. With enough equity, the new loan may need none. If it carries PMI, ask whether it is borrower-paid or lender-paid. The cancellation rights the CFPB describes apply to borrower-paid PMI on a primary home. They do not cover high-risk loans.

Refinancing into another FHA loan is the trap. The FHA Streamline is a fine tool. It refinances an existing FHA loan with no appraisal, a limited credit review, and a net tangible benefit. But the premium continues. It is a cheaper way to stay in FHA, not a way out.

Cash-out is also not an exit from insurance, which is the next section’s point.

Exit Refinance vs. FHA Cash-Out: What Actually Differs

An FHA cash-out refinance reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. That 80% cap is a real limit. The loan also carries the 1.75% upfront premium and a new annual premium. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

The nuance: at 80% LTV, the annual premium falls in the “at or below 90%” bracket, so it ends after eleven years rather than lasting the full term. That is better than a high-LTV purchase loan. But it is a new eleven-year clock, and the upfront premium is charged again. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

A conventional cash-out refinance can also pull equity and skip FHA premiums. It has its own leverage limits, and they differ by property type and lender. Lendmire’s piece How Mortgage Insurance Differs on FHA Cash-Out and Conventional walks through that side-by-side.

Where the General Rule Breaks

Most borrowers fit the table above. A few don’t.

• Older shorter-term loans. Loans with terms of fifteen years or less have their own cancellation rules by case-number date. Ask your servicer which applies.
• Delinquency on an older loan. Servicers generally want a clean recent payment history before they cancel. A late-pay streak can delay a cancellation you would otherwise get.
• Old Streamline and Simple Refinance loans. HUD’s premium schedule excepts certain older loans from the annual premium. Section 247 loans carry no annual premium, and Section 248 loans carry no upfront premium. These are narrow cases.
• The upfront-premium refund. FHA has a refund credit for refinancing within a few years, but it is designed for FHA-to-FHA refinances. Leave FHA and you generally give it up. Confirm with your servicer if you are within that window.
• The 2023 premium reduction. It applied to loans endorsed on or after its effective date. It did not retroactively lower older loans, and it did not change the duration rules.

Another note on timing. If you are inside the eleven-year window on a loan at or below 90% original LTV, waiting may beat refinancing. The premium ends on its own, and you skip a full set of closing costs.

Three Scenarios (Percentages, Not Dollars)

These are illustrations, not quotes, and every outcome is subject to lender guidelines and full file review.

The clean exit. Picture a buyer who put down the minimum investment on a 96.5% FHA loan. Their home has appreciated and their credit has improved. A new appraisal puts a conventional loan comfortably under 80% LTV. They requalify, pay off the FHA loan, and carry no mortgage insurance. The premium ends at payoff. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

The borderline case. Say you owe somewhat more than 80% of the new appraised value. A conventional loan would need PMI. Your options are to pay down the balance first, wait for appreciation, or accept PMI that you can ask to cancel later. The ability to request PMI cancellation matters because FHA insurance has no equivalent off-switch on a newer loan.

The cash-out case. Now say you need money for a project and your equity is solid. An FHA cash-out tops out at 80% LTV, and you get FHA’s flexible underwriting. But you restart the premium clock and pay the upfront premium again. If your credit supports a conventional loan, a conventional cash-out may carry less insurance cost. If conventional won’t work for you, FHA cash-out may be the only path that does.

Is Leaving Worth It?

Run a break-even test. The savings come from dropping the monthly premium. The costs are a new appraisal, title work, and the fees of the new loan. A refinance within a few years that leaves FHA also gives up the upfront-premium credit.

Ask yourself four questions:

• How many years will you stay in the home? A short stay rarely repays the closing costs.
• Do you have enough equity to avoid PMI, or will you swap one insurance for another?
• Can you requalify on conventional terms?
• Does your loan cancel on its own soon, making a refinance unnecessary?

This is a mechanics question, not a sales pitch. A refinance that doesn’t pay back inside your time in the home is just expensive paperwork.

Key Terms Defined

Upfront premium: a one-time insurance charge of 1.75% of the base loan, usually financed into the balance.

Annual premium: the ongoing FHA insurance charge, collected monthly. It is set by term, loan amount, and LTV.

LTV (loan-to-value): your loan balance divided by the home’s value.

Case number: the FHA identifier assigned to your loan. Its date decides which cancellation rule applies.

PMI: private mortgage insurance on a conventional loan. It can be cancelled, unlike FHA premiums on newer loans.

Streamline: a refinance of an existing FHA loan with limited review. The premium continues.

Choosing Your Path

If your loan is on the full-term track and your equity is strong, a non-FHA refinance is usually the real exit. If you need cash and conventional won’t fit, FHA cash-out works, with the premium reset as the cost. If you are close to the eleven-year mark, waiting may beat both. 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.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Answers: MIP on loans with case numbers before the June 2013 changeover

2. HUD Mortgagee Letter on the premium duration change (hosted by FHFA)

3. Congressional Research Service, FHA-Insured Home Loans

4. HUD Handbook excerpt on MIP remittance (Equity-Saver-Sale PDF)

5. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan

6. HUD Mortgagee Letter 2023-05 (Appendix 1.0)