How to cancel FHA MIP or conventional PMI mortgage insurance
What is FHA MIP?
FHA MIP, or mortgage insurance premium, is a type of insurance policy that protects lenders if an FHA loan holder defaults on his or her mortgage.
This insurance allows lenders to issue FHA loans requiring very small down payments and at low rates. FHA MIP reduces lender risk, and the benefits are passed onto the borrower.
The FHA homebuyer pays for the policy upfront and monthly. Borrowers normally pay monthly MIP for the life of the FHA loan. But, there are ways to get rid of your mortgage insurance.
You can cancel it with a refinance. If you have an FHA loan opened prior to June 2013, you can also wait for it to terminate automatically.Click to see your FHA MIP removal eligibility (Nov 23rd, 2017)
How long does FHA MIP last?
FHA loans fall in two categories: those with case numbers issued by June 3, 2013, and applications dated after that.
FHA MIP cancellation depends on this classification, because that’s when FHA rules changed.
→FHA loans applied for on or after June 3, 2013
|Loan Term||Original Down Payment||MIP Duration|
|20, 25, 30 years||Less than 10%||Life of loan|
|20, 25, 30 years||More than 10%||11 years|
|15 years or less||Less than 10%||Life of loan|
|15 years or less||More than 10%||11 years|
→FHA loans applied for prior to June 3, 2013
|Loan Term||Original Down Payment||MIP Duration|
|20, 25, 30 years||Less than 10%||78% LTV based on original purchase price (5 years minimum)|
|20, 25, 30 years||10-22%||78% LTV based on original purchase price (5 years minimum)|
|20, 25, 30 years||More than 22%||5 years|
|15 years||Less than 10%||78% LTV|
|15 years||10-22%||78% LTV|
|15 years||More than 22%||No MIP|
How to cancel FHA mortgage insurance
Most FHA homeowners today have a loan with the following characteristics
- Opened after June 2013
- Less than 10% down original down payment
- 30-year loan
Such a loan is not eligible for mortgage insurance cancellation. The good news is that there are no restrictions on refinancing out of FHA into a conventional loan with no PMI. There are never any prepayment penalties on FHA loans, so you can refinance any time you want.
House values have risen dramatically over the past few years. A home you put just 3-5% down on a few years ago could have enough equity to refinance without taking on new PMI.
You only need about 20% equity to do so.
Am I eligible for FHA MIP cancelation?
If you received your FHA loan before June 2013, you are eligible for MIP cancelation after five years.
You must have 22% equity in the property, and you must have made all payments on time.
For homeowners with FHA loans issued after June 2013, you must refinance into a conventional loan and have a current loan-to-value of at 80% or more.Click to see your FHA MIP removal eligibility (Nov 23rd, 2017)
Canceling conventional private mortgage insurance (PMI)
You have more options to cancel mortgage insurance if you have a conventional (non-government) loan with PMI.
You can simply wait for it to drop off. By law, lenders must cancel conventional PMI when you reach 78% loan-to-value.
Many home buyers opt for a conventional loan, because PMI drops, while FHA MIP typically does not.
Keep in mind that most lenders base the 78% LTV on their last appraised value. If your property value has gone up substantially, contact the current servicer and check its requirements to cancel early.
The servicer may require a new appraisal, or rely on their own internal valuation tools to determine your home's up-to-date value.
You can also cancel conventional PMI with a refinance. The appraisal for your refinance loan serves as proof of current value. If your loan amount is 80% or less of your current value, you do not incur new PMI.
Current FHA MIP rates
2017 FHA MIP rates are as follows for 20-, 25- and 30-year FHA loans.
|Original Loan Amount||Original Down Payment||Annual MIP|
FHA loans with terms of 15 years or less qualify for reduced MIP, as low as 0.45% annually.
In addition, there is an upfront mortgage insurance premium (UFMIP) required for FHA loans equal to 1.75% of the loan amount.
You may be entitled to a partial FHA MIP refund if refinancing into another FHA loan within 3 years.
Refinancing into lower FHA MIP
You can use a conventional refinance to eliminate your FHA loan insurance altogether, or you can reduce your mortgage insurance premium by refinancing into another FHA loan.
You may have a higher rate of MIP than what is available today. Here is a history of FHA MIP.
- Prior to January 2008 : 0.50% annual MIP
- October 2008 : 0.55% annual MIP
- April 2010 : 0.55% annual MIP
- October 2010 : 0.90% annual MIP
- April 2011 : 1.15% annual MIP
- April 2012 : 1.25% annual MIP
- April 2013 : 1.35% annual MIP
- January 2015 : 0.85% annual MIP
If you received a loan in January 2013, for instance, you could refinance into today’s lower MIP and save $40 per month per $100,000 borrowed. Plus, you may save even more by getting a lower mortgage rate.
Keep in mind, though, that your FHA MIP will become non-cancelable, since your new loan will originate after June 2013, when FHA MIP rules changed.Click to see your FHA MIP removal eligibility (Nov 23rd, 2017)
Reduced upfront and monthly MIP for certain refinancing homeowners
If you received your FHA loan prior to May 31, 2009, you can receive lower MIP rates via an FHA streamline refinance.
Eligible candidates receive annual MIP of 0.55% (standard is 0.85%) and reduced upfront MIP of 0.01% (standard is 1.75%).
That’s a savings of $3,480 upfront and $50 per month on a $200,000 loan.
A word to homebuyers: Deciding between FHA MIP and conventional PMI
The obvious advantage to conventional PMI is that it drops off automatically – no refinance necessary. That’s not the case with FHA MIP.
Yet, many home buyers choose FHA and its mortgage insurance because it is more cost-effective. The following chart shows FHA and conventional PMI costs assuming 3.5% down.
|Credit Score||FHA MIP Monthly Cost Per $100,000 Borrowed||Conv. PMI Monthly Cost Per $100,000 Borrowed||Monthly FHA Savings Per $100,000 Borrowed|
While FHA MIP is non-cancelable, it’s often the cost-effective choice for home buyers.
Are there lenders that specialize in FHA-to-conventional refinances?
Any lender that offers conventional loans by Fannie Mae and Freddie Mac can help you cancel your FHA MIP via a refinance.
Any FHA-approved lender can help you reduce your payments via an FHA streamline.
Shop around for the best rates. While most lenders in the U.S. offer conventional and FHA loans, each one will offer different rates for them.
When home values rise, cancel your FHA MIP
Paying FHA mortgage insurance doesn’t have to be permanent. You just have enough equity to refinance into a conventional loan.
According to the National Association of REALTORS®, the median home listed for sale in the U.S. was $255,600 during the second quarter of 2017, more than 6% higher than one year ago.
Some experts are predicting that certain areas could see appreciation upwards of 10% in 2018.
That means more homeowners will be in a position to refinance out of FHA, and very soon.
Once homeowners hits 20% equity based on current value, they can refinance into a conventional loan -- one that does not require any mortgage insurance whatsoever.
How to refinance out of any home loan with mortgage insurance
The process to do so is straightforward. Get an estimate of value from a local real estate agent or loan officer. Online home valuation websites can be inaccurate, so be careful with those.
See if you have around 20% equity based on your home’s estimated value. Be sure to add closing costs onto your existing loan balance if you do not wish to pay them out of pocket.
For example, you purchased a home three years ago.
- Original purchase price: $200,000
- Original FHA loan amount: $196,375
- Payment with FHA MIP: $1,186
After three years, you’ve paid off principal, and your home’s value has risen. Both these factors help you cancel your FHA MIP.
- New conventional loan amount: $188,000
- Current Value: $235,000
- Loan-to-value: 80%
- New payment (no PMI): $898
Refinancing out of FHA MIP can yield substantial savings. Homeowners who received an FHA loan prior to January 2015 are paying quite high FHA mortgage insurance premiums. This is because FHA dropped premiums by 35% in 2015, but only for new FHA applicants.
Pre-2015 FHA home buyers can get a double savings effect: they are tapping into today’s low rates and canceling high FHA mortgage insurance, with one refinance.
How Do I Get Started?
Contact a lender and get a rate quote. Mortgage quotes come with an eligibility check and potentially an estimate of current home value.
Get a quote and get started canceling your FHA MIP today.Click to see your FHA MIP removal eligibility (Nov 23rd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.