What is a mortgage insurance premium (MIP)?

A mortgage insurance premium (MIP) is the insurance fee charged on FHA loans — unlike conventional PMI, it includes an upfront charge of 1.75% at closing plus an annual premium paid monthly. For borrowers who put down less than 10%, FHA MIP lasts for the life of the loan.

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.

MIP doesn't protect you — it protects the lender

Mortgage insurance premiums insure the lender against your default. If you can't make payments, MIP doesn't help you keep your home. Separately, homeowners insurance protects your property — that's a distinct cost.

Sources

FHA upfront mortgage insurance premium is 1.75% of the base loan amount, payable at closing or rolled into the loan. — HUD / FHA
For FHA loans with less than 10% down payment on a 30-year term, the annual MIP is charged for the life of the loan. — HUD / FHA — MIP Chart
Conventional loan borrowers have the right to cancel PMI once equity reaches 20% of original value under the Homeowners Protection Act; FHA MIP follows different cancellation rules. — CFPB

Key takeaways

FHA MIP has two parts: 1.75% upfront at closing + ongoing annual premium (~0.55%/year).
With less than 10% down on a 30-year FHA loan, MIP lasts the entire loan term.
With 10%+ down, MIP cancels after 11 years on most FHA loans.
Conventional PMI has no upfront charge and cancels at 20% equity — often cheaper long-term.
Once you have 20% equity, refinancing into a conventional loan can eliminate MIP permanently.

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