What Is Mortgage Insurance Premium?
MIP (mortgage insurance premium) is the mortgage insurance required on FHA loans. It is charged as an upfront premium, which can be financed into the loan, plus an annual premium paid monthly, in most cases regardless of down payment size. It protects the lender and adds to the borrower's monthly cost.
Mortgage Insurance Premium in plain English
FHA loans require mortgage insurance from the Federal Housing Administration in two parts: an upfront premium charged at closing, which can be financed into the loan, and an annual premium paid in monthly installments.
The annual premium is a percentage of the loan, and how long you pay it depends on your down payment. With less than 10% down, it usually lasts for the life of the loan.
Why it matters
Under HUD Mortgagee Letter 2023-05, the upfront premium is 1.75% of the base loan amount, and the annual premium for most 30-year loans is 0.50% to 0.55% a year, for 11 years if the loan-to-value is 90% or less at origination, otherwise for the full term. HUD sets these rates and can change them.
What it means for you
Who pays?
The borrower.
How does it affect my budget?
Add the monthly premium to your housing payment and the financed upfront premium to your loan balance.
Common mistakes
- Assuming FHA mortgage insurance drops off at 20% equity, as PMI can.
- Comparing an FHA loan with a conventional loan by rate without adding the premiums.
- Forgetting the financed upfront premium increases the loan balance.
PMI vs. MIP
Private Mortgage Insurance — required on most conventional loans with a down payment below 20%, and can typically be removed once enough equity builds up.
Mortgage Insurance Premium — required on FHA loans as both an upfront and ongoing fee, in most cases regardless of down payment size, and often lasts for the life of the loan.
Mortgage Insurance Premium: frequently asked questions
How much is FHA mortgage insurance?
The upfront premium is 1.75% of the base loan amount, and the annual premium for most 30-year loans is 0.50% to 0.55% of the loan, paid monthly. HUD sets the rates and can change them.
Can FHA mortgage insurance be removed?
Sometimes it can. If you put at least 10% down, the annual premium ends after 11 years; otherwise it lasts for the life of the loan, and the usual way out is refinancing into a conventional loan.
Related Terms
More Financing Terms
Recommended next step
Compare FHA and conventional payments with mortgage insurance included.
Mortgage calculator →Sources and review
- Mortgagee Letter 2023-05, Reduction of FHA Annual Mortgage Insurance Premium Rates, U.S. Department of Housing and Urban Development. Supports: The 1.75% upfront premium and the annual premium rates and durations by loan-to-value.
Where this applies: United States. FHA mortgage insurance rates are set by HUD and can change; confirm current rates with an FHA lender.
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Examples use illustrative figures; rules of thumb are labelled as such. Rates, limits and program rules change - confirm current figures with your lender or a qualified professional.
This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.
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