Orlando Harmon
The Department of Housing and Urban Development (HUD) offers mortgage insurance, also known as a mortgage insurance premium (MIP), to protect lenders from losses in the event of a borrower defaulting on their loan. MIP is typically required for loans backed by the Federal Housing Administration (FHA) and is paid by the borrower. While the cost of MIP can vary depending on the loan and the loan amount, it generally lasts for the life of the loan. For those with FHA loans, it is common to wonder when this insurance will stop. Although there is no one-size-fits-all answer, there are certain conditions that can lead to the termination of FHA insurance. For instance, for mortgages with an FHA case number assignment date on or after June 3, 2013, the FHA insurance can be terminated if the mortgage is paid in full before the maturity date.
| Characteristics | Values |
|---|---|
| Type of Insurance | Mortgage Insurance Premium (MIP) or Private Mortgage Insurance (PMI) |
| Insurance Provider | Federal Housing Administration (FHA) |
| Who Pays the Insurance | The borrower |
| When is it Paid | At closing and annually |
| When does it Stop | When the loan is paid in full before the maturity date or when the borrower has a substantial amount of equity in their home |
| Payment Methods | Monthly, annually, or one-time payment |
| Late Fees and Interest Charges | Late fees are assessed if the payment is received after the 10th of the month. Interest charges are assessed if the payment is received after the end of the month. |
| Insurance Cost | Depends on the type of loan, the loan amount, and the property's specifications. |
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What You'll Learn
MIP (Mortgage Insurance Premium)
Mortgage Insurance Premium (MIP) is a type of insurance applied to mortgage loans insured by the Federal Housing Administration (FHA). FHA loans are provided by FHA-approved lenders and are popular options for homebuyers who may not have the financial means to make large down payments or meet high credit requirements for a conventional mortgage. The FHA allows approved lenders to provide lower down payment requirements and more flexible credit qualifying requirements compared to most conventional loans.
MIP is an annual payment on a HUD mortgage, paid at closing and annually. It lasts for the life of the loan and is set at a fixed rate. However, as a borrower pays off the principal balance of their loan, the amount of MIP they’re required to pay declines as well. The purpose of MIP is to provide additional security to the lender in case of default on the loan. While upfront and annual MIPs are costs that must be considered when exploring loan options, there are ways to reduce them.
There are two types of MIP: Upfront MIP and Annual MIP. The upfront MIP is a percentage of the base loan amount and can be paid as a lump sum at the closing of the loan or financed into the total loan balance and paid for as part of your monthly payments. The upfront mortgage insurance premium (UFMIP) needs to be paid at the time of closing. The annual MIP is paid on a monthly basis and is calculated based on the loan amount, the loan-to-value ratio, and the loan term. It can vary depending on these factors.
MIP can be cancelled under certain circumstances. For FHA loans closed with an application date before June 3, 2013, your annual MIP may cease when your loan-to-value (LTV) ratio is at least 78%. For FHA loans closed with an application date on or after June 3, 2013, your annual MIP costs may automatically end after 11 years, provided you made a minimum down payment of 10% or more. If you put down less than 10% upfront for an FHA loan closed on or after June 3, 2013, you will be required to pay MIP for the full loan term.
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FHA insurance termination
Eligibility for FHA Insurance Termination
The eligibility criteria for FHA insurance termination depend on when you took out your FHA loan and the original down payment amount. If you received your FHA loan before June 3, 2013, you may be able to remove MIP after 5 years if your original down payment was at least 10%. If your down payment was less than 10%, you may be stuck with MIP for the life of the loan, unless you refinance. For loans originated after June 3, 2013, with a down payment of at least 10%, MIP can be cancelled after 11 years. Additionally, if your loan-to-value (LTV) ratio reaches 78%, you may be eligible for MIP cancellation, regardless of the origination date.
Automatic Termination vs. Refinancing
There are two main ways to remove FHA mortgage insurance: automatic termination and refinancing. If you meet the eligibility criteria for automatic MIP cancellation, you can simply wait for the mortgage insurance to be removed automatically after 11 years. However, if you don't meet these criteria, refinancing to a conventional loan may be the best option to remove FHA mortgage insurance. When considering refinancing, it's important to note that you may still need to pay for mortgage insurance, known as PMI (Private Mortgage Insurance), if your LTV ratio is 80% or higher.
Steps to Take
To determine your eligibility for FHA insurance termination, start by reviewing your loan details and contacting your loan servicer. They can advise you on the next steps and help explore your options, including refinancing if necessary. If you qualify for automatic termination, ensure you follow up with your servicer a few months before your loan's 11-year anniversary to ensure the cancellation is on track. Additionally, keep in mind that your loan must be in good standing, with all payments made on time, and you must meet other requirements, such as not having any outstanding FHA loans or past-due federal debt.
In summary, FHA insurance termination can be achieved through automatic cancellation or refinancing, depending on your loan details and eligibility. By taking the necessary steps and meeting the required criteria, you can successfully remove FHA mortgage insurance from your loan.
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Monthly MIP cancellation
The Monthly Mortgage Insurance Premium (MIP) is an annual payment on a HUD mortgage, paid at closing and annually. It is a type of insurance that protects the lender from losses in the event of a borrower defaulting on their loan. The purpose of MIP is to provide additional security to the lender in case of default on the loan. MIPs range in cost from 0.15 percent to 0.75 percent of the loan principal, depending on how much was borrowed and the loan's term. Most borrowers pay 0.55 percent.
If you have an FHA loan, you may be eligible for automatic MIP termination after 11 years, in which case your servicer should take care of the cancellation process for you. However, it is advisable to follow up with them a few months before your loan's 11-year anniversary to ensure the cancellation is on track. The eligibility criteria for automatic MIP cancellation depend on when you took out your FHA loan and your original down payment amount.
If your FHA loan was taken out before June 3, 2013, you can remove MIP after 5 years if your original down payment was at least 10% of the purchase price. If your down payment was less than 10%, you will generally need to pay MIP for the life of the loan, unless you refinance. For FHA loans taken out on or after June 3, 2013, you can remove MIP after 11 years if your original down payment was at least 10% of the purchase price.
If you don't meet the criteria for automatic MIP cancellation, refinancing to a conventional loan is usually the best way to remove FHA mortgage insurance. When you refinance, you take out a new loan to pay off your existing FHA loan. If you have sufficient equity (generally 20% or more), you can refinance into a conventional loan without any mortgage insurance required.
Regardless of which option you choose, to be eligible for FHA mortgage insurance removal, you must meet certain requirements. These include being current on your payments, having made all mortgage payments on time, having a good payment history over the previous 12 months, not having any outstanding FHA loans or past-due federal debt, and ensuring that the property is your principal residence, not a vacation home or investment property.
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MIP costs
Mortgage insurance premium (MIP) is a type of mortgage insurance that is required of homeowners who take out loans backed by the Federal Housing Administration (FHA). Unlike conventional loans, which typically only require private mortgage insurance (PMI) if a home down payment is less than 20% of the purchase price, all FHA loans require MIP. MIP is typically lower than PMI, but the cost of MIP can vary depending on the type of loan and the loan amount.
MIP is an annual payment on a HUD mortgage, paid at closing and annually. The exact amount of annual MIP will cost depends on the loan amount, term, and down payment. For example, a borrower with a 30-year, $300,000 FHA loan on which they made a 3.5% down payment would have an annual MIP rate of 0.55%.
For the HUD 223(f) loan program, MIP costs are 25 basis points for properties using a Green MIP Reduction, 65 basis points for market-rate properties, 45 basis points for Section 8 or new money LIHTC properties, and 70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC. For the HUD 221(d)(4) loan program, MIP costs are 0.65% upfront and 0.65% annually for market-rate properties, 0.45% upfront and 0.45% annually for affordable properties, and 0.70% upfront and 0.70% annually for Section 220 properties.
Each FHA loan requires both an upfront premium of 1.75% of the loan amount and an annual premium of 0.15% to 0.75%. The payment of upfront premiums is due at the loan issuance. The determination of the exact yearly cost comes from the loan term, amount borrowed, and loan-to-value ratio (LTV). Each month, the loan payment amount reflects the annual premium divided by 12 months, along with the principal payment.
MIP lasts for the life of the loan and is set at a fixed rate. As a borrower pays off the principal balance of their loan, the amount of MIP they are required to pay declines as well. If a borrower made a down payment of 10% or more on their FHA loan, they will pay annual MIP for 11 years. If the down payment amount was less than this, the borrower cannot cancel the MIP and will pay for mortgage insurance throughout the life of the loan. The only way to remove the qualified mortgage insurance (MIP) on an FHA loan is to refinance it into a non-FHA product.
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MIP calculations
Mortgage Insurance Premium (MIP) is a type of insurance that protects the lender from losses that occur when a borrower defaults. MIP is typically required for loans backed by the Federal Housing Administration (FHA). It is paid by the borrower and is usually a one-time payment at closing. The purpose of MIP is to provide additional security to the lender in case of default on the loan.
For HUD 223(f) loans, MIP costs vary depending on the property type. For market rate properties, MIP is 65 basis points, while for Section 8 or new money LIHTC properties, it is 45 basis points. For Section 220 urban renewal projects that are not Section 8 or LIHTC, MIP is 70 basis points.
MIP lasts for the life of the loan and is set at a fixed rate. However, as a borrower pays off the principal balance, the amount of MIP they are required to pay decreases. The FHA MIP rate is determined by the loan term and down payment. Converting the annual FHA MIP to a monthly payment involves multiplying the annual rate by the average principal balance over the next 12 months, excluding the UFMIP, and then dividing the annual premium by 12.
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Frequently asked questions
A HUD mortgage insurance premium, or MIP, is a type of insurance policy provided for certain loans backed by the Federal Housing Administration or Department of Housing and Urban Development. MIP is an annual payment on a HUD mortgage, paid at closing and annually.
To cancel your periodic mortgage insurance premium, your case must have reached 22% equity for its Risk-based loan. You can then change the month and year that the last monthly insurance premium is assessed using the Monthly MIP Cancellation function on the FHA Connection.
You must submit a request to the Interest and Late Charge Review Committee at HUD's Single Family Insurance Operations Branch for a late/interest adjustment. If you would like a refund, specify this on your request to the Committee.
