The Quick Read: An FHA cash-out refinance carries two mortgage-insurance costs, and both matter if you expect to leave the loan later. The upfront premium is 1.75% of the base loan and is usually financed. The annual premium is billed monthly, and on a compliant cash-out it typically runs eleven years. An exit plan works only if you will have enough equity to leave without paying for insurance again.
Key Takeaways
- A cash-out refinance caps at 80% LTV. LTV (loan-to-value) is your loan balance divided by the home’s appraised value.
- The upfront premium is paid once and normally rolled into the balance. You do not get it back as cash when you leave.
- Because the cash-out cap is 80%, the annual premium on a compliant loan generally falls into the eleven-year bucket, not the full-term bucket.
- Taking cash out lowers your equity. That can push your later exit to conventional financing further away.
- The decision is a timing question: how long you will carry the insurance, and when equity gets you out.
How Does Mortgage Insurance Work on an FHA Cash-Out?
You pay mortgage insurance twice on an FHA cash-out: once at closing, then every month. The upfront piece is 1.75% of the base loan, financed into the balance. The monthly piece is a slice of the annual premium, set between 0.15% and 0.75% of the balance depending on term, loan amount and LTV.
Here is the mechanical picture. The base loan is your payoff, any allowed costs, and the cash you take. The 1.75% is figured on that base. HUD’s FHA Resource Center confirms the upfront premium is 1.75% on purchase and refinance loans. The annual premium is collected in monthly installments with your payment. It counts toward your qualifying ratios.
Across the wholesale programs Lendmire places FHA files with, the base ratios are 31/43. That means housing costs of 31% of income and total debts of 43%. Documented compensating factors can stretch that to 40/50 at the top tier. The automated underwriting finding governs most files, subject to lender guidelines and full file review.
Here is the catch for cash-out borrowers. A bigger balance means a bigger annual premium base. You pay insurance on the cash you took, not just the debt you already had.
Lendmire’s FHA cash-out refinance program page lays out the basic eligibility. You generally need to have owned and lived in the home for 12 months before the case number is assigned. The lender also reviews your 12-month payment history on your mortgages. An appraisal is required. That appraisal sets the value the 80% cap is tested against.
Why Does an Exit Plan Change the Math?
If you know you will refinance out of FHA, the insurance stops being a background cost. It becomes a bill with a start date and a hoped-for end date. Every month you carry it before leaving is a cost you can count.
Most homeowners look at a cash-out and ask whether the cash is worth it. Fewer ask what happens when they try to leave. Those are two different questions.
Think about it from the exit side. A conventional loan can drop mortgage insurance once your equity is high enough. A cash-out starts you at 80% LTV, the most the program allows. That means you begin with the minimum equity cushion, 20%. Any exit to a conventional loan without mortgage insurance usually needs about that much equity, or more, depending on the lender.
So the plan has three parts:
1. How long will you carry the annual premium if you stay? On a compliant cash-out, usually eleven years.
2. When will you have enough equity to go conventional without insurance?
3. Does paying a new upfront premium now make sense if you may leave soon?
If the second answer is “not for years,” the exit plan is mostly a hope. If it is “within a few years,” the numbers can work.
How Long Does the Annual Premium Last?
On a cash-out, the annual premium typically lasts eleven years. Above 90% LTV it runs for the whole loan term. At or below 90% LTV it ends after eleven years, as HUD’s Mortgagee Letter 2013-04 sets out for the loan’s starting LTV, measured before the financed upfront premium.
Now put two rules side by side. The cash-out cap is 80%. The full-term trigger starts above 90%. A cash-out that follows the cap therefore lands in the eleven-year bucket, even with the upfront premium financed on top.
That is an inference from how the two rules combine, not a single sentence from HUD. Your lender confirms the actual schedule on your file. Still, it matches what practitioners see: a standard cash-out generally does not carry premium for the whole term.
Two more points sharpen this:
- Appreciation does not shorten it. The schedule is time-based on newer loans. A higher appraisal later does not cancel the premium on its own.
- A big down payment is not the lever here. On a cash-out, the lever is leaving the loan through a refinance or payoff.
The cap itself has a history. HUD’s 2019 announcement cut the cash-out maximum from 85% to 80% to line up with the limit conventional loans use. If you read an older source quoting 85%, it is out of date.
What Happens to the Upfront Premium When You Leave?
If you refinance into another FHA loan within about three years, you may get a credit toward the new upfront premium. If you refinance into a conventional loan, you get no refund at all. The credit is never paid as cash.
That one rule matters for exit planning. Think of the upfront premium as a sunk cost if your destination is conventional.
The credit works like this. It declines over time and reaches zero around the 36-month mark. Because the exact schedule is set by HUD and can change, confirm the current figure with your loan officer or directly with HUD before you plan an exit.
What does this mean for you?
- Leaving for conventional: assume the 1.75% you financed is gone. It stays in your balance until you pay off the loan.
- Moving FHA to FHA: you may get a partial credit if you are inside the window. This is usually a Streamline, discussed below.
- Leaving in the first few years: you paid upfront insurance and received little use from it. That raises the true cost of a short stay.
A short stay on FHA is the costliest way to use the program. If you expect to be out in two or three years, weigh that before you sign.
FHA MIP Versus Conventional PMI
FHA and conventional insurance end by different rules. FHA ends by schedule or by leaving the loan. Conventional private mortgage insurance, or PMI, ends when your balance drops far enough relative to the home’s original value.
| Factor | FHA MIP | Conventional PMI |
|---|---|---|
| Upfront charge | 1.75% of base loan | Usually none |
| Ends when | Eleven years, term, or you refinance | Balance reaches set LTV point |
| Appreciation helps? | Not on newer loans | Can matter on a new appraisal |
| Refund on exit | Credit only to a new FHA loan | Not applicable |
The CFPB explains the conventional side in its PMI guidance. You can ask to cancel when the scheduled balance reaches 80% of the home’s original value. The lender usually wants a written request, a good payment history, and no junior liens. It also wants evidence the value has not dropped. Servicers must end it automatically at 78%.
One planning detail is easy to miss. After a refinance, “original value” is generally the appraisal used for that refinance. A cash-out resets your baseline. The new loan starts at a higher balance against a new value. Confirm how your servicer measures this before you count on a cancellation date.
FHA Cash-Out Now or Conventional Cash-Out Now?
If you can qualify for a conventional cash-out, compare it directly. FHA’s edge is flexibility. Conventional’s edge is that mortgage insurance may be avoided or cancelled sooner. The right choice depends on credit, equity and how long you plan to stay.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Maximum LTV | 80% | Varies by lender |
| Mortgage insurance | Upfront plus annual | Depends on LTV |
| Credit flexibility | Often broader | Often tighter |
| Exit plan | Refinance out later | Cancel PMI later |
Conventional cash-out terms vary by lender and by the standards behind the loan. This article does not state them. Ask for both quotes side by side, with the same cash-out amount.
FHA also tends to fit borrowers who are rebuilding. HUD’s waiting periods are two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from any lender. Wholesale programs often start at a 580 decision score, though lenders may set higher floors.
If your credit is strong, conventional may cost less over time. If your credit is thin, FHA may be the only door that is open. Then the exit plan is how you get out later, once your profile improves.
A Worked Example
Say a homeowner’s current mortgage sits at 55% of the home’s appraised value. She wants cash for a renovation. The cash-out cap is 80%. So she can borrow up to 80% total, with the new loan covering her payoff, allowed costs and the cash.
The 1.75% upfront premium rides on top of the base loan. The annual premium applies to the larger balance. Because her base LTV is at or under 90%, the annual premium follows the eleven-year schedule.
Now compare her two paths:
- Path one: stay on the FHA loan. She pays annual premium for eleven years, then it ends. The total cost is the financed upfront premium plus eleven years of monthly premium.
- Path two: refinance out after some time. She exits once her balance sits at or below roughly 80% of value with a lender that will drop insurance. The upfront premium is lost. The monthly premium stops the day the old loan is paid off.
Here is the break-even logic in words. Compare the monthly premium you stop paying with the cost of the new refinance. The new loan has its own closing costs. Divide those costs by the monthly insurance savings. That tells you how many months you need to stay for the move to pay off.
Her starting point matters too. She began at the 80% cap, so she has just 20% equity. To exit without insurance, she needs her balance to fall, her home value to rise, or both. She also has no equity buffer if prices dip. Her exit might sit several years out, or it might never pencil at all.
Notice something else. Had she borrowed less, say to 70% LTV, her exit would arrive sooner. Cash-out size is a dial. Turning it down shortens the road back to conventional. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Where the Standard Rule Breaks
A few situations change the answer. Know these before you assume the eleven-year rule fits your file.
Older loans. Loans with case numbers assigned before the mid-2013 change followed a different rule. Annual premium on those cancels automatically at 78% of the lesser of original price or appraised value, after five years of payments. HUD does not consider new appraisals for that test, per its legacy-loan guidance. If you hold an older loan, refinancing it into a new cash-out swaps that cancellation rule for the newer schedule. Run that comparison first.
Streamline refinances. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit. The premium continues. It lowers cost only in some cases, and it does not take cash out. Cash-out is the only FHA refinance capped at 80%. A rate-and-term refinance can reach 97.75% on a principal residence, which usually means a longer premium period.
Special-case loans. HUD’s FAQ notes some programs sit outside the standard premium structure, including reverse mortgages (HECM), Title I, and certain Hawaiian Home Lands and Indian Lands loans. A reduced premium schedule also exists for Streamlines of loans endorsed before mid-2009. None of that applies to a standard cash-out.
Inheritance and manufactured homes. An heir may not need the usual occupancy period before a cash-out, provided the home was never treated as an investment property. A manufactured home must have been permanently installed on its site for more than 12 months.
Moving out. If you move out and rent the home, occupancy decides the leverage, and the 80% owner-occupied cash-out no longer applies.
When an Exit Plan Does Not Make Sense
Skip the exit plan if the numbers will not support it. Three common cases:
- You need to borrow to the cap. At 80% LTV, you may be years from the equity a conventional lender wants.
- Your credit may not improve soon. If a conventional approval is far off, plan around staying and know the eleven-year schedule.
- Your current loan is favorable. Giving up a good existing loan to chase a lower insurance cost can backfire.
The exit plan is a bet on equity and credit improving. Place that bet only when the odds look reasonable.
Pre-Commitment Checklist
Before you take the cash-out, walk through these questions:
1. How much equity will remain after the cash-out?
2. How many years until I could reach roughly 80% LTV or lower?
3. Is my credit likely to qualify for a conventional loan then?
4. What would a conventional cash-out cost me today, with insurance?
5. How much cash do I truly need? Can I borrow less?
6. How long will I stay in this home?
7. What are the closing costs of the later exit loan? Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
If you want help thinking through the same issue after you close, Lendmire’s guide How to Plan Your Exit From MIP After an FHA Cash-Out covers the sequencing in more detail.
Key Terms Defined
Upfront mortgage insurance premium (UFMIP): A one-time charge of 1.75% of the base loan, normally financed into the balance.
Annual mortgage insurance premium (annual MIP): A yearly charge set by term, loan amount and LTV, collected in monthly installments with your payment.
LTV (loan-to-value): Your loan balance divided by the home’s appraised value, shown as a percentage.
Base loan amount: The loan before the financed upfront premium is added. The premium’s size and duration tests start from it.
Net tangible benefit: A test that an FHA Streamline must meet. It shows the new loan clearly helps the borrower.
PMI (private mortgage insurance): Mortgage insurance on conventional loans. It can usually be cancelled once your equity reaches a set point.
Frequently Asked Questions
Can I remove FHA mortgage insurance without refinancing?
On most newer loans, no. The annual premium ends only when the schedule runs out or the loan is paid off. For a compliant cash-out that schedule is usually eleven years. Older loans that predate the mid-2013 change may cancel automatically at 78% under the old rule.
Do I get my upfront premium back if I leave FHA?
Only partly, and only in one case. Refinancing FHA to FHA within roughly three years may earn a declining credit toward the new upfront premium. It is a credit, not cash. Refinancing into a conventional loan earns nothing back.
Does taking cash out hurt my chance to drop insurance later?
Yes, it can. Cash-out lowers your equity, so you need more time or more appreciation to reach a conventional loan without insurance. It also resets the baseline value that later conventional PMI cancellation is measured from. Borrowing less keeps the exit closer.
Would an FHA Streamline help me lower or end the premium?
A Streamline may lower your cost in some cases, but it does not remove mortgage insurance. The premium continues. It also takes no cash out. If your goal is to end insurance, a Streamline is a different tool than a refinance into conventional.
Does home appreciation cancel FHA mortgage insurance?
Not by itself on newer loans. The schedule is based on time and starting LTV. Appreciation helps only because it lets you qualify for a conventional loan, which then replaces the FHA loan and ends its premium.
Where to Go From Here
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. Program figures here reflect wholesale guidelines and are subject to lender review and full file evaluation. Nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD FHA Resource Center: MIP structure for forward mortgages
2. HUD Mortgagee Letter 2013-04, MIP duration
3. HUD archive: 2019 press release on cash-out lending
4. CFPB: When can I remove PMI from my loan?
5. HUD FHA Resource Center: MIP collection for pre-June 2013 loans
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: Texas Homestead Rules for an FHA Cash-Out Refinance · Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? · 5 Myths About Qualifying for an FHA Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.