What Is Mortgage Insurance Premium (MIP)?

Mortgage insurance premium (MIP) is the mortgage insurance you pay on every FHA loan, no matter how much you put down. It comes in two parts: an upfront premium of 1.75% of the base loan amount, which you can finance into the loan, and an annual premium billed monthly. MIP protects the lender, not you, if the loan defaults.

HUD sets the annual premium by loan amount, term, and loan-to-value ratio. On a loan longer than 15 years with a base amount of $726,200 or less, it’s 0.50% with at least 5% down and 0.55% with less than 5% down (HUD Mortgagee Letter 2023-05). On a $300,000 FHA loan, the upfront MIP is $5,250. At 0.55%, the annual MIP works out to roughly $137 a month in the first year, and it shrinks a little as your balance drops.

How long you pay depends on your down payment. With 10% or more down, annual MIP ends after 11 years. With less than 10% down, it lasts for the life of the loan. Unlike conventional PMI, it doesn’t come off when you reach 20% equity, so the usual way out is refinancing into a conventional loan.

To see what MIP does to your monthly budget, pick FHA in the mortgage payment calculator. For the full HUD rate table with a worked example, see FHA loan requirements in Florida.

Key Facts

• Upfront MIP: 1.75% of the base loan amount, which can be financed into the loan
• Annual MIP range: 0.15% to 0.75% depending on loan term, amount, and LTV
• Loans over 15 years, $726,200 or less: 0.50% with 5% or more down, 0.55% with under 5% down
• Duration: Life of loan for down payments under 10%; 11 years for 10% or more down
• Payment method: Annual premium divided by 12 and added to your monthly payment
• Refund policy: If you refinance into another FHA-insured loan within 3 years, part of your upfront MIP is credited toward the new loan’s upfront premium. It isn’t paid back as cash.

Frequently Asked Questions

How is MIP different from PMI?

MIP applies to FHA loans and includes both an upfront and annual charge. PMI applies to conventional loans when you put less than 20% down. PMI ends automatically once your balance is scheduled to reach 78% of the home’s original value, while MIP usually lasts the entire loan term.

Can I avoid paying MIP on an FHA loan?

No. MIP is required on all FHA loans regardless of your down payment. If you want to eliminate mortgage insurance, you can refinance into a conventional loan once you have at least 20% equity in your home.

Is the upfront MIP paid out of pocket at closing?

It doesn’t have to be. You can finance the 1.75% upfront MIP into the loan balance instead of paying it at closing. On a $250,000 loan, that adds $4,375 to your total amount financed.