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- FHA MIP removal hinges on certain factors like your loan origination date and your down payment size.
- If you got your loan before 2000, you're stuck with the FHA mortgage insurance premiums for the life of the loan.
- Loans originated after 2000 might be eligible for FHA mortgage insurance removal in certain cases.
If you have an FHA loan, you might be wondering how to get rid of the mortgage insurance premium (MIP) you’re paying each month.
Unlike on conventional loans (which only impose private mortgage insurance or PMI when down payments are under 20 percent), FHA loans come with mandatory mortgage insurance premiums regardless of the amount of your down payment. Canceling them can be challenging, but not impossible. Here’s how to get rid of the MIP on an FHA loan (and when you can’t).
Step-by-step guide to removing FHA mortgage insurance
1. Check your eligibility
Knowing how to get rid of MIPs on an FHA loan isn’t enough. You also need to have a loan that’s eligible for this option.
“There are a number of factors that come into play when determining whether or not the FHA mortgage insurance can be canceled,” says Alan Aldinger, vice president of media relations for PNC Bank. “The biggest factor is when the case number was assigned for a borrower’s current FHA loan.”
In other words, you may be eligible for automatic MIP removal depending on when you received your loan, along with how much of it you’ve paid off and how much of a down payment you made.
Here’s how eligibility for FHA mortgage insurance removal breaks down by loan origination date:
- If your origination date is between July 1991 and December 2000, you cannot cancel your FHA mortgage insurance premiums. You’ll need to keep paying them for the life of the loan or refinance into a new loan.
- If you received your loan between January 2001 and June 3, 2013, your MIP will be automatically canceled when you reach a loan-to-value ratio (LTV) of 78 percent.
- If your loan originated after June 3, 2013 and you made a down payment of at least 10 percent, your MIP will be canceled after 11 years. For down payments of less than 10 percent, you’ll have to pay MIPs until your mortgage is paid in full.
To find out what you’re eligible for, look at your mortgage loan origination date to determine which FHA MIP removal rules apply to you.
2. Understand your options
FHA mortgage insurance removal
If you meet the eligibility requirements to remove MIP from an FHA loan, you can work with your lender to get rid of it once you meet the criteria. For loans originated between 2001 and June 3, 2013, you have that option once you hit the 78 percent LTV ratio. For borrowers who got their loan after June 3, 2013 and put more than 10 percent down, that becomes an option after 11 years.
If either of those cases apply to you, contact your lender to discuss getting rid of your FHA mortgage insurance premium.
Refinance to a conventional loan
If you or your lender determine you can’t eliminate the MIP, it’s time to think about whether you should refinance your FHA loan to a conventional loan. Here are a few key considerations to make before refinancing:
- Credit score – What does your credit look like now versus what it looked like when you took out your FHA loan? If you’ve improved it, you might qualify for a conventional loan with a better rate, and no private mortgage insurance if your LTV is 80 percent or less.
- LTV ratio – In addition to how much you’ve paid on your existing FHA loan, the value of your home is critical. Is your home worth more today due to rising property values or a major renovation you did on it?
- Closing costs – Refinancing isn’t free. You’ll need to pay closing costs on the new loan, which can add up to thousands of dollars. While it will feel good to be rid of the annual MIP, make sure that refinancing will also save you money and be worth it in the long run. Bankrate’s mortgage refinance calculator can help you decide.
3. Contact your lender
If you meet the criteria to eliminate the mortgage insurance premium on your FHA loan (you’ve hit the required LTV ratio or reached the life-of-loan benchmark), reach out to your lender or servicer. They can discuss the next steps with you to cancel the MIP. You can also explore your refinance options if you aren’t eligible for FHA mortgage insurance removal.
Should you remove MIP from an FHA loan?
If you’re eligible to remove MIP from an FHA loan after gaining enough equity in your home, it probably makes sense to do so. Simply put, it’s one less payment you’ll have to make.
However, if you’re considering refinancing just to remove MIP, there are a few more things to consider. For one, depending on your equity level, you may still need to pay mortgage insurance. With a conventional loan, that’s known as PMI — and it may be pricier than your MIP premium. You’ll also need to go through the loan process again, including paying closing costs.
On the plus side, refinancing can reduce your monthly mortgage payments, and that may make up for the higher premiums. Plus, PMI is easier to get rid of. You can request to cancel your PMI on a conventional loan after you reach 20 percent equity, or an 80 percent LTV in your home — which could be a major advantage, depending on when you received your FHA loan and how much you put down.
Keep in mind: The Homeowners Protection Act of 1998 dictates that your mortgage lender or servicer must automatically terminate PMI when your loan-to-value (LTV) ratio drops to 78 percent — in other words, when your mortgage balance equals 78 percent of the purchase price of your house.
FAQ about FHA MIP removal
FHA mortgage insurance premiums are an extra fee that’s added to your mortgage to reduce the risk that you default, or stop making payments, on your FHA loan. There are two components of MIP: an upfront portion (paid once at closing) and an annual portion (paid yearly).
The upfront portion of the MIP equals 1.75 percent of the amount borrowed and is paid when you close on your home. Your annual MIP rate depends on a few factors, including the total amount and terms of your loan, but currently ranges between 0.15 percent and 0.75 percent of the loan principal.
Both MIP and PMI are types of mortgage insurance, but MIP is specific to FHA loans, and PMI is for conventional loans. All FHA loan recipients are required to have mortgage insurance, but conventional loan borrowers only need to have insurance if they made a down payment of less than 20 percent.
That depends on when your loan was originated and how much you put down. If you got your loan before 2000, you’re stuck with the MIPs. If you got your loan between 2001 and June 3, 2013, you can cancel once you hit a LTV of 78 percent. If you got your loan after June 2013, you can cancel after 11 years if you put down 10 percent. If you put down less than 10 percent on a loan originated after June 2013, you’re also stuck with paying your MIPs.
Potentially, if you explore an FHA streamline refinance. While this won’t guarantee FHA MIP removal, a premium reduction could mean lower MIPs if you refi to a lower rate than what you currently have.
No. FHA mortgage insurance removal is wholly contingent on when you got your loan, how much you put down and your loan-to-value ratio.