FHA Mortgage Insurance (MIP) Explained
Mike Starr
Founder, MortgageWizardTools · M.S. Organizational Management
FHA mortgage insurance — called MIP (Mortgage Insurance Premium) — is required on all FHA loans. Unlike conventional PMI, FHA MIP has two components and different removal rules. Understanding the cost helps you decide if FHA is right for you.
The Two Components of MIP
Upfront MIP (UFMIP)
- •Cost: 1.75% of the loan amount
- •Paid: at closing, but typically financed into the loan
- •Example: on a $380,000 loan, the upfront MIP is $6,650 (added to the loan balance)
Annual MIP
- •Cost: 0.55% per year for loans under $625,500 with over 15-year terms and less than 5% down
- •Range: 0.40% to 1.05% depending on loan amount, term, and down payment
- •Paid: monthly, divided by 12 and added to your payment
- •Example: on a $380,000 loan at 0.55%, the annual MIP is $2,090, or about $174/month
When MIP Can Be Removed
| Down Payment | MIP Duration |
|---|---|
| Less than 10% | Life of the loan |
| 10% or more | 11 years |
This is the key difference from conventional PMI. With less than 10% down, FHA MIP is permanent — the only way to remove it is to refinance into a conventional loan.
The Real Cost of FHA MIP
On a $380,000 loan (3.5% down on a $400,000 home):
| Component | Amount |
|---|---|
| Upfront MIP (financed) | $6,650 |
| Monthly MIP (0.55%) | $174/month |
| MIP over 30 years | $62,640 + interest on the $6,650 |
That is over $70,000 in mortgage insurance alone over the life of the loan.
When to Refinance Out of FHA MIP
If your credit improves or your home appreciates, you may be able to refinance into a conventional loan and drop the MIP entirely — even if you have not reached 80% LTV, because conventional PMI is removable but FHA MIP is not.
Calculate whether the refinance savings (dropping MIP) exceed the closing costs. Use our Refinance Calculator to compare.
Key Takeaways
- •FHA MIP has two parts: 1.75% upfront + 0.55% annual (monthly)
- •With less than 10% down, MIP is permanent for the life of the loan
- •Refinancing to a conventional loan is the only way to remove MIP (under 10% down)
- •The total MIP cost can exceed $70,000 over 30 years
- •Compare FHA MIP with conventional PMI before choosing