The Quick Read: Fees and the monthly payment are linked, but not in the way most borrowers assume. Some costs are paid in cash and never touch the payment. Others are financed into the loan, so they raise the balance and the payment with it. The mortgage insurance premium is the biggest piece, and it hits the payment two different ways.
Most confusion comes from treating “fees” as one lump. They are not. Each cost has its own rules for how it is paid, and that decides whether it changes what you owe each month.
Key Takeaways
- Your new payment is built on the whole new loan balance, not only the cash you take out.
- The upfront mortgage insurance premium is 1.75% of the base loan and is typically financed, so it raises the balance.
- The annual premium is billed monthly and is a separate line in the payment.
- A cash-out on this program reaches 80% LTV on a home you have owned and lived in for 12 months before the case number.
- Closing costs vary by lender, so comparing estimates is worth the effort.
Lendmire, a mortgage broker licensed for consumer lending in 16 states, arranges the FHA cash-out refinance program through wholesale lenders. Across FHA cash-out refinances, the same four misunderstandings come up again and again. Each one is worth taking apart.
Key Terms Defined
Base loan amount: The loan before any financed premium is added.
Upfront mortgage insurance premium (UFMIP): A one-time premium of 1.75% of the base loan, typically added to the balance.
Annual mortgage insurance premium: A premium billed monthly, set by loan term, loan amount and LTV, and running from 0.15% to 0.75% of the balance per year.
Loan-to-value (LTV): The base loan divided by the appraised value of the home.
Rescission: A short federal cooling-off period after signing a refinance on your own home, when you can cancel.
Estimated cash to close: The figure on your Loan Estimate showing the money you must bring, net of credits.
Which Costs Touch Your Payment?
Every cost on an FHA cash-out falls into one of a few buckets. The bucket decides the payment effect. The table below shows the common ones. Program details are subject to lender guidelines and full file review.
| Cost item | How it is paid | Does it change the payment? |
|---|---|---|
| Upfront premium (1.75%) | Typically financed | Yes, raises the balance |
| Annual premium | Billed monthly | Yes, added each month |
| Lender and third-party fees | Cash or from proceeds | Only if rolled into the loan |
| Prepaids and escrow deposits | At closing | Escrows shape the monthly total |
Think of it as two questions. Does the cost get added to the loan? Is it billed every month? A yes to either one moves your payment.
Myth 1: “The Government Sets the Fees, So Closing Costs Are the Same Everywhere”
What people believe: Because the program is federal, the bill must be standardized.
What the facts show: The government sets the mortgage insurance premium. Lenders set their own fees. Title, appraisal, recording and lender charges differ from one file to the next.
You can see this on the Loan Estimate, a standard form that lenders generally must provide for covered mortgage loans. The CFPB’s guide to the Loan Estimate explains that it shows your estimated cash to close, net of credits and adjustments. Federal good-faith rules also limit how some costs can change between that estimate and closing, as the CFPB’s TILA-RESPA FAQs describe. Lender fees generally cannot rise. Some other items can move more freely, like prepaids and escrow deposits.
Why the myth persists: The insurance premium really is one rate for the program. People assume the rest follows.
The fair takeaway: Ask two or more lenders for a Loan Estimate and compare line by line. Lower fees can mean a smaller financed balance, and that matters for the payment. Lender pricing differs, and nothing here is a commitment to lend.
Myth 2: “The Upfront Premium Is a Lender Fee I Must Pay in Cash”
What people believe: It is a charge the lender keeps, due at the closing table.
What the facts show: It is the insurance premium on the loan. HUD’s Mortgagee Letter 2023-05 sets it at 1.75% of the base loan amount. It goes to the federal mortgage insurance fund, not to the lender.
Most borrowers finance it. That keeps cash in your pocket at closing, but it has a catch. You then pay interest on it for the life of the loan.
Here is the math in percentages, with no dollar figures. Say the base loan is at the 80% cap. Add the financed premium and the balance becomes about 81.4% of the home’s value. The cap is measured on the base loan, so the premium itself does not use up cap room. But the payment is calculated on the larger number.
Why the myth persists: The premium shows up beside other closing items on the paperwork, so it looks like one more fee.
The fair takeaway: Financing the premium trades a smaller cash need today for a slightly bigger payment and more total interest. Paying it in cash does the reverse. Some borrowers prefer one, some the other. It depends on how much cash you want to keep and how long you plan to hold the loan.
Myth 3: “FHA Mortgage Insurance Lasts Forever, or Disappears at 20% Equity”
What people believe: Either the insurance stays for life, or it drops off once you reach 20% equity.
What the facts show: Neither belief fits the current rules. The Congressional Research Service explains that for loans with newer case numbers, the length of the annual premium depends on the original LTV. At 90% or lower, it ends after 11 years. Above 90%, it runs for the loan term.
A cash-out is capped at 80% LTV, so it sits in the 90%-or-lower group. Across the files Lendmire sees, that means the 11-year period is the usual expectation, subject to the lender’s final loan terms. The annual premium’s amount depends on term, loan amount and LTV. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Here is the part people miss. Your home growing in value does not cancel the premium on its own. HUD’s cancellation approach looks at the original schedule, not a later appraisal.
A refinance also starts a new loan. The 11-year clock restarts. If you have been paying FHA insurance for eight years and cash out, you are not three years from done. You are back near the start.
Why the myth persists: Older loans did carry insurance for life, and conventional loans can drop it at a set equity level. Advice from those worlds gets applied to this one.
The fair takeaway: The insurance is a real, multi-year cost. Weigh it against how long you plan to keep the loan. If you expect to refinance out early, the restart matters less. If you plan to stay, it matters more.
Myth 4: “My Payment Only Rises by the Cash I Take Out”
What people believe: Take a little cash, add a little payment. Take more, add more.
What the facts show: The new payment is based on the entire new balance. A cash-out replaces your old mortgage with a new, larger one. Principal and interest are recalculated on all of it. Then the annual insurance premium is added each month. Taxes and homeowners insurance escrows feed in too.
Three things stack up in the new balance:
- The payoff of your current loan.
- The cash you receive.
- Any costs and the upfront premium you choose to finance.
Your net cash is also smaller than “80% of my home’s value.” HUD’s Mortgagee Letter 2019-11 cut the cash-out cap to 80% of value, down from the older 85% level. The cap counts every lien. A second mortgage or HELOC that stays in place uses up part of that 80%. Then your payoff, closing costs and any unfinanced amounts come out of what is left.
There is also a gap between signing and funding. Because it is a refinance of the home you live in, federal rules give you a rescission window. The CFPB explains that the clock starts only after you sign and receive the required disclosures and notices. Cash is released after that window ends, not at the table.
Why the myth persists: “Cash-out” sounds like a small add-on. In reality, the whole mortgage is rewritten.
The fair takeaway: Judge the payment on the new total, not on the cash alone. A different loan term can also change the picture. A longer term can soften the monthly figure while raising what you pay overall. A shorter term does the opposite. Neither choice is wrong. It depends on your budget and goals.
Who Is Eligible, in Plain Terms
The leverage figure and the eligibility test are separate questions. On the FHA cash-out, the home must be your principal residence. You must have owned and lived in it for 12 months before the case number. The loan reaches 80% LTV. The wholesale programs Lendmire works with start at a 580 decision score, and individual lenders may set higher minimums. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Ratios start at 31/43, housing to total debt, with no compensating factors. Documented factors can reach 40/50 at the top tier. Most files are decided by the automated underwriting findings.
Second homes and rentals work differently. Occupancy decides the leverage, so this program is for the home you live in.
What to Check on Your Own Estimate
A short checklist works better than a long theory.
1. Find the premium line. See whether the upfront premium is financed or paid in cash.
2. Compare the loan amount to the cash you want. The gap is payoff plus costs.
3. Look at the monthly total. The estimate should show principal and interest, mortgage insurance and escrows separately.
4. Compare two estimates. Match lender fees, not just the bottom line.
5. Think about your timeline. Staying put? The long-run cost matters more. Planning to refinance again? A second round of closing costs is part of that plan.
Frequently Asked Questions
Will my payment go up after an FHA cash-out refinance?
Your payment may go up. The payment is built on a new, larger balance, plus the monthly insurance premium. A longer term or different interest cost can offset some of that, so some borrowers see a smaller change than they expect. The estimate you receive will show the actual figure for your file.
Can I pay the upfront premium in cash instead of financing it?
Many borrowers can choose either, subject to lender guidelines. Paying in cash keeps the balance lower. Financing it keeps cash on hand but adds interest over time. Your Loan Estimate shows which way a given quote is set up.
Does the annual premium come off when I reach 20% equity?
Not automatically. HUD bases cancellation on the original loan schedule, and a new appraisal does not cancel it. On a cash-out at 80% LTV, the annual premium typically ends after 11 years. Confirm the final terms on your own file.
Do closing costs count against the 80% limit?
The limit is measured on the base loan, so a financed upfront premium is not counted in LTV. Other costs you roll in can change your loan amount, though, so the cash you walk away with shrinks. A lender can show you the exact math on a real quote.
Can I use a cash-out refinance on a rental or second home?
Occupancy decides the leverage, and this program is built for the home you live in as your principal residence. Other options exist for other property types, but they work differently.
The Bottom Line
Fees and the payment are connected through two doors: the financed balance and the monthly premium. Ask which costs go into the loan, and the rest becomes much easier to follow. 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. Reach the team at 828-256-2183 or request a quote.
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.
For the program’s current guidelines, see FHA loan programs.
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References
1. CFPB Loan Estimate explainer
3. HUD Mortgagee Letter 2023-05 (upfront premium)
4. Congressional Research Service, FHA-Insured Home Loans
5. HUD Mortgagee Letter 2019-11 (80% cash-out cap)
6. CFPB on the right of rescission
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: FHA Cash-Out vs Conventional Cash-Out for a Declined Homeowner · How Much Payment an FHA Cash-Out Frees on Your Existing FHA Loan · How to Get Your First FHA Cash-Out After a Quitclaim Deed
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.