How Annual MIP Changes the Payment on an FHA-to-FHA Cash-Out

The Quick Read: Annual MIP is one line inside the new payment, and it is recalculated on the balance of a brand-new loan. A cash-out raises that balance, so the premium line usually grows, though it shrinks as the loan pays down. Because an FHA cash-out is capped at 80% LTV, the annual premium runs 11 years from the new loan, not for the life of the loan. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.

What Actually Changes Between the Old Payment and the New One

An FHA-to-FHA cash-out is not a modification. It is a new insured loan with a new case number, a new appraisal and new underwriting. The old loan is paid off, and the old premium history does not follow you, with one exception covered below.

The new payment has four moving parts:

• Principal and interest on a larger balance
• Annual mortgage insurance premium (MIP), collected monthly
• Property taxes and homeowners insurance, if escrowed
• Any financed upfront premium sitting inside the balance

Most borrowers focus on the first line. The MIP line is the one they forget to compare. It changes for three reasons: the balance is higher, the rate tier may differ from the old loan, and the term may differ.

The program details for this loan sit on Lendmire’s FHA cash-out refinance program page. In short, across the wholesale programs Lendmire places files with, the FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. County loan limits apply. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Key Terms Defined

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

Upfront MIP: A one-time premium of 1.75% of the base loan, which most borrowers finance into the balance.

Annual MIP: A yearly premium, set as a percentage of the balance, that is billed in monthly pieces.

Refinance credit: A prorated credit from the old loan’s upfront premium that can reduce the new upfront premium. It is never paid as cash.

Adjusted value: The appraised value figure used to measure the 80% cash-out cap. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Upfront vs. Annual: Two Different Premiums

The upfront premium is 1.75% of the base loan. The CFPB explains that rolling the upfront fee into the mortgage raises the loan amount and the overall cost. That matters for the payment. A financed upfront premium becomes part of the balance, and the balance drives both principal and interest and the annual MIP.

The annual premium is a separate, recurring item. Across the programs in the network it runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. HUD’s own answers page says the annual premium is collected monthly and added to the payment, and that the amount and duration depend on the loan type, term and LTV. It is a mechanic, not a price tag.

How Annual MIP Is Calculated

The monthly MIP is not a flat percentage of today’s balance. HUD’s premium calculation method takes the annual rate times the average outstanding balance over the amortization year. If the upfront premium was financed, that result is divided by 1 plus the upfront factor. Then it is divided by 12.

Here is the build, step by step:

1. Find the base loan amount. That is the cash-out loan before any financed upfront premium.

2. Pick the tier. Term (15 years or less versus longer), base loan amount and LTV select the annual rate. The current grid is in Appendix 1.0 of HUD Mortgagee Letter 2023-05. Shorter terms land in a lower tier. Larger base loans land in a higher one.

3. Apply the rate to the average balance. The year’s average balance comes from the original amortization schedule.

4. Back out the financed upfront premium. The formula divides it out so the premium is not charged on itself.

5. Divide by 12. That is the MIP line on the monthly statement.

One point matters here. Because the average balance falls each year, the annual MIP dollar amount falls with it. The percentage stays in its tier. The balance underneath it shrinks.

The 2023 reduction deserves a note. HUD cut annual MIP rates by 30 basis points for loans endorsed on or after March 20, 2023. It applies to new endorsements. An existing loan did not get cheaper on its own. A cash-out is a new endorsement, so it is priced on the current schedule.

Does the Old Loan’s Premium History Matter?

Mostly no. The new loan is rated on its own term, balance and LTV. That is why comparing the old and new MIP line is a real exercise, not a formality.

Say you have an older FHA loan that started at a high LTV, so it sat in a higher tier. The new cash-out at 80% LTV or less lands in a different tier. The MIP line could go down as a rate while the balance goes up. Or the reverse. Neither direction is automatic, and it depends on the term you pick. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

The one carry-over is the refinance credit. HUD’s FHA Connection system runs a Refinance Credit Query that calculates a refinance netting amount from the projected closing date on the old case. In practice, it is a prorated credit that shrinks as the old loan ages. It reduces the new upfront premium. It does not arrive as a check. The lender runs that query for your old case, so the exact figure shows up in the upfront premium line on your Loan Estimate.

The credit has a payment effect. A smaller financed upfront premium means a smaller starting balance. A smaller starting balance means a slightly smaller principal-and-interest line and a slightly smaller MIP line. It is a small chain, but it is a real one.

How Long Annual MIP Lasts After a Cash-Out

On an FHA cash-out, annual MIP runs 11 years from the new loan. It does not last for the life of the loan. Duration is set by LTV at origination. Under HUD Mortgagee Letter 2013-04, LTV is the loan amount before any financed upfront premium, divided by the lesser of price or appraised value.

For a thirty-year loan, the rule works like this:

An FHA cash-out is capped at 80% LTV, which sits under the 90% line. So the cash-out always lands in the 11-year tier, and the 11 years run from the new loan. The above-90% row does not apply to it. HUD does not state a “reset” in those words. It is the combined result of two rules. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Here is where that can help. An older FHA loan that began above 90% LTV may have carried premium for its full term. A new cash-out at 80% or less starts a clock that ends after 11 years. For more on duration tiers, Lendmire’s piece FHA Cash-Out Annual MIP Duration by LTV, Term and Loan Tier walks through the combinations. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

Check the old loan’s original LTV and endorsement date before you compare. Loans endorsed before June 3, 2013 follow older duration rules.

What Drives the Payment: A Decision Table

Notice the trade in the term rows. A longer term can ease the principal-and-interest line, but it can land in a higher premium tier and stretches the loan out, so total interest grows. A payment-only comparison can hide that. Looking only at the monthly number misses how the term, the tier and the larger balance work together.

How the Payment Changes in Later Years

The MIP line at the end of year one is not the MIP line at year five. The premium follows the declining balance, so it steps down each year while the loan amortizes. Principal and interest stay level. So the total payment drifts down slightly in dollars, even though nothing is refinanced.

That is also a reason to avoid a “year-one-only” read. If someone quotes you the MIP line, ask which year it represents. Then compare the 11-year tier against your plan for the home. Selling or refinancing before year 11 makes the duration less important. Staying put makes it more important. For a longer look at how the premium adds up across years, see Lendmire’s piece How Much the Annual MIP Adds to an FHA Cash-Out Payment Over Time.

Where the General Rule Breaks

A few edge cases change the answer:

• Pre-June 2013 loans follow legacy duration rules.
• Streamline and Simple Refinances of loans endorsed on or before May 31, 2009 are exempt from the current annual MIP schedule and the upfront premium rule. Those are not cash-out loans, but they show that MIP rules vary by refinance type.
• Section 247 Hawaiian Home Lands loans carry no annual MIP and sit outside the 80% cash-out cap, per HUD Mortgagee Letter 2019-11.
• Subordinate liens count against the combined LTV. Any second lien that stays on the home uses room under the 80% cap.
• Larger base loans price in a higher tier. County loan limits apply, so the top of that range varies by where the home sits.
• Occupancy, seasoning and payment history requirements come from HUD Handbook 4000.1. Lenders review them on every file, and some set stricter overlays. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

A cash-out also needs a new appraisal. A streamline can use the original value, but a cash-out cannot.

Common Mistakes When Judging the Payment

• Assuming MIP is paid once a year. It is billed monthly.
• Assuming the old MIP line carries over. The new loan is rated fresh.
• Assuming MIP lasts for the life of the loan. At 80% LTV or less it runs 11 years.
• Quoting the 85% cap. Older sources still show it. Cash-out has been capped at 80% since HUD’s 2019 change.
• Expecting the refinance credit as cash. It is a credit against the new upfront premium.
• Assuming the cash-out removes MIP. On an FHA-to-FHA loan, a new premium schedule applies.
• Comparing payments without comparing the full picture. A lower payment on a longer term can cost more over time. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

A simple habit helps. Line up the old and new payment side by side, one component at a time: principal and interest, MIP, escrow. Then note the balance, the term and the tier. The Loan Estimate shows the confirmed figures.

What the Decision Looks Like

The question is not only whether the payment goes up. It is what you get for the change. Set the cash received against the larger balance, the new MIP line and the 11 years of premium. Then weigh the term. A shorter term lowers the premium tier but raises principal and interest.

Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.

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 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.

References

1. CFPB: What is mortgage insurance and how does it work

2. HUD’s own answers page

3. HUD Monthly MIP Calculation

4. HUD Mortgagee Letter 2023-05

5. HUD FHA INFO 2023-11

6. Refinance Credit Query

7. HUD Mortgagee Letter 2013-04

8. HUD Mortgagee Letter 2019-11