Definition
FHA mortgage insurance premium (MIP)
The mortgage insurance premium (MIP) is the insurance charged on FHA loans in place of private mortgage insurance. It has two parts: an upfront premium, usually financed into the loan, and an annual premium paid in monthly installments. It protects the lender and funds the FHA insurance program.
FHA insurance lets lenders make loans with small down payments and more flexible credit standards. In exchange, the borrower pays MIP.
Upfront MIP is 1.75%, and most borrowers add it to the loan rather than paying it at closing. Annual MIP in the most common case, a 30-year loan with less than 5% down, is 0.55%; the rate varies with term, loan size and LTV. The annual premium is divided by twelve and added to the monthly payment.
Worked example. On a $300,000 purchase with 3.5% down, the base loan is $289,500. Multiply that base by the upfront rate to get the premium added to the balance, then multiply the new balance by the annual rate and divide by twelve for the monthly MIP. The FHA loan calculator does both steps and shows the total loan amount.
Duration is the big difference from PMI. With 10% or more down, annual MIP generally ends after 11 years; with less than 10% down it generally lasts for the life of the loan. Borrowers who want to shed it usually refinance into a conventional loan once they have enough equity. Reverse mortgages (HECMs) carry their own, separate MIP structure.
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FAQ · 2 questions
Questions about FHA mortgage insurance premium (MIP)
Can FHA mortgage insurance be removed?
It depends on the down payment. With 10% or more down, annual MIP generally ends after 11 years. With less than 10% down it usually lasts for the life of the loan, so removing it means refinancing into a non-FHA loan.
Do I have to pay upfront MIP in cash at closing?
Usually not. Most borrowers finance the upfront premium into the loan, which raises the balance slightly and means interest is paid on it over time.
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