Buying Financing Mortgages 101 The Closing Process4 min read

FHA Mortgage Insurance: What Is MIP?

MIP stands for mortgage insurance premium. All borrowers with FHA loans are required by the Federal Housing Administration (FHA) to pay two forms of MIP — one upfront at closing and another monthly fee over the loan term. The insurance protects the lender in case of loan default, but that means adding hundreds of dollars to your upfront closing costs and monthly mortgage payments.

There is a benefit to MIP as a home buyer. The mortgage insurance premium allows lenders to offer FHA loans with more lenient qualification criteria than conventional loans, like lower credit scores, smaller down payments and more flexible income requirements. Check out today's mortgage rates on an FHA loan.

PMI vs MIP

Both private mortgage insurance (PMI) and mortgage insurance premiums (MIP) are types of insurance that protect the lender when a borrower defaults on their mortgage. The main difference is that PMI applies to conventional loans, while MIP applies to FHA loans.

Lenders offering conventional loans require PMI when a borrower makes a down payment of less than 20% of the purchase price on a home. PMI is usually paid in monthly installments and can be canceled once the borrower has acquired 20% equity. It can also be removed by refinancing, assuming the borrower has paid down the mortgage principal enough to increase their home equity or they reach an 80% loan-to-value ratio.

For FHA loans, MIP is paid as a combination of a single upfront premium at closing and ongoing monthly payments. For most FHA borrowers, MIP will endure for the life of the loan, unless the borrower chooses to refinance into a non-FHA loan. The only exception is for borrowers who put at least 10% down, in which case MIP may be removed after 11 years.

This table summarizes the key differences between PMI and MIP.

	PMI	MIP
Type of loan	Conventional	FHA
Requirements	PMI is required when your down payment is less than 20%.	MIP is required on all FHA loans, regardless of the down payment amount.
Paid	Monthly	Upfront and monthly
Cost	PMI is typically between 0.0022% to 0.025% of the loan amount.	Upfront MIP is 1.75% of the loan amount. Monthly MIP varies by loan duration and LTV but is typically 0.55%.
Cancellation	PMI can be removed when you have paid down the loan principal enough to reach 20% equity.	MIP typically can’t be removed. Some borrowers may remove it after 11 years or by refinancing to a conventional loan.

Different types of FHA mortgage insurance

There are two different types of FHA mortgage insurance premiums, and all FHA borrowers will pay both.

Upfront MIP: Protects the lender in case the borrower defaults. This is a one-time payment equal to 1.75% of the loan amount, due at closing with other closing costs.

Annual MIP: Helps cover the cost of the FHA’s insurance program. For most loans, this is an annual payment of 0.55% of the loan amount, divided into 12 monthly payments that will be paid alongside your principal and interest payments.

Borrowers can choose to pay only the upfront MIP at closing or pay both portions (upfront and annual) at closing to lower monthly costs. Alternatively, upfront MIP can roll into the loan while monthly premiums are paid monthly throughout the life of the loan.

How much does FHA mortgage insurance cost?

Most FHA borrowers will pay an upfront payment of 1.75% of the loan amount at closing. Then, they’ll pay 0.55% of the loan amount each year, divided into 12 monthly payments. For example, if you borrow $300,000, you’ll pay an upfront payment of $5,250. Then, each year you’ll pay $1,650, divided into 12 payments of $137.50 per month.

Annual rates vary depending on the loan amount and the borrower’s loan-to-value ratio (LTV), which is the loan amount compared to the value of the property.

Here are the annual MIP rates as of 2023 for 30-year and 15-year FHA loans.

30-year loan MIP costs

Principal loan amount	Loan-to-value ratio (LTV)	Annual MIP
$726,200 or less	At least 90%, no more than 95%	0.50% of loan amount
$726,200 or less	More than 95%	0.55% of loan amount
More than $726,200	At least 90%, no more than 95%	0.70% of loan amount
More than $726,200	More than 95%	0.75% of loan amount

15-year loan MIP costs

Principal loan amount	Loan-to-value ratio (LTV)	Annual MIP
$726,200 or less	90% or less	0.15% of the loan amount
$726,200 or less	Less than 90%	0.40% of the loan amount
More than $726,200	78% or less	0.15% of the loan amount
More than $726,200	At least 78%, no more than 90%	0.40% of the loan amount
More than $726,200	More than 90%	0.65% of the loan amount

How long do I have to pay MIP?

For loans originated after June 3, 2013, all borrowers will pay MIP for the life of the loan. If you make a down payment of 10% or more, you can request to remove your MIP after 11 years so you no longer have to make payments. The other exception is if your loan originated prior to June 3, 2013 and you now hold 22% equity in the home, you can then request to cancel the MIP.

How can I get rid of mortgage insurance on an FHA loan?

If you make a 10% down payment, you can get rid of mortgage insurance on an FHA loan after 11 years. Otherwise, you cannot remove MIP. While you used to be able to request a cancellation of MIP after you reached a loan-to-value ratio of 78%, laws have since changed for any FHA loan originated after June 3, 2013. Another way to get out of paying MIP is to refinance your mortgage into a non-FHA loan or sell the home, removing your obligation to pay MIP.