What is a mortgage insurance premium (MIP)?

When you take out an FHA loan, the Federal Housing Administration insures the lender against default. That insurance isn't free — you pay it as a mortgage insurance premium (MIP). MIP has two components: an upfront charge due at closing and an ongoing annual premium billed monthly. This is different from private mortgage insurance (PMI) on conventional loans, which has no upfront charge and cancels once you reach 20% equity.

Upfront MIP: 1.75% at closing

The upfront MIP is 1.75% of the base loan amount regardless of down payment or loan term. On a $300,000 loan, that's $5,250 due at closing — or rolled into the loan balance, which slightly increases your monthly payment and the total interest paid over the loan's life.

Annual MIP: how long it lasts

The annual MIP rate depends on your loan term, loan amount, and down payment. For most borrowers on a 30-year loan with less than 10% down, it's currently 0.55% of the loan balance per year, paid in monthly installments. Critically, FHA MIP on loans with less than 10% down does not cancel automatically — it runs for the full loan term. Borrowers who put 10% or more down can eliminate MIP after 11 years.

• Down payment < 10%, 30-year term: MIP lasts the life of the loan.
• Down payment ≥ 10%, 30-year term: MIP cancels after 11 years.
• 15-year term, any down payment ≥ 10%: MIP cancels at 11 years.
• Annual MIP rate: typically 0.55% for most 30-year FHA loans (varies by loan amount and LTV).

MIP vs. PMI: what's the difference?

Conventional PMI has no upfront premium and must be cancelled by law once you reach 20% equity (or 22% automatically). FHA MIP has an upfront premium and may never cancel. This can make FHA loans more expensive over a long holding period even if the entry requirements are more accessible. Borrowers who improve their credit may consider refinancing into a conventional loan to eliminate the ongoing MIP once they have 20% equity.