Mortgage Guide

How to get a home loan

How to get rid of FHA mortgage insurance

For the past decade, the FHA mortgage was the best loan for many people buying or refinancing a home.

In fact, FHA was the only game in town for some people. There was simply no other way to get a mortgage with a lower fixed rate, smaller down payment, or less than perfect credit.

FHA still has advantages. But more often than not, FHA loans cost more than the new conventional loan alternatives. If you have an FHA loan now, then you probably don’t have the best mortgage deal, even if your rate is low - especially if your loan is less than five years old.

That’s because FHA loans have a mortgage insurance premium (MIP). You pay it every month, and it’s likely that you can never cancel it - at least not until you pay off the FHA loan.

Read this article if you want to know how to get rid of mortgage insurance forever.  Find out if your MIP auto-terminates or if you're stuck with it for the life of the loan. Then I’ll show you a the quickest way to compare mortgages so you can decide if you should refinance your home.

How does FHA MIP work?

You always pay two types of mortgage insurance when you do an FHA loan. You pay an upfront mortgage insurance premium (UFMIP) plus a monthly mortgage insurance premium (MIP).

FHA loans and mortgage insurance

Use our FHA mortgage calculator to see today’s exact UFMIP and monthly MIP payments. FHA Loan Calculator

Will my FHA mortgage insurance auto-terminate?

If you did your FHA loan after June of 2013, then you can cancel your MIP when you meet all the requirements outlined below:

  • You’ve had the loan for more than 11-years
  • You made all your payments on time
  • Your mortgage, when you started it, was less than or equal to 90% of your home’s value

If you did your FHA loan before June of 2013, then you can cancel your MIP when you meet all these requirements:

  • You’ve had the loan for more than 5-years
  • You made all your payments on time
  • Your loan balance today is less than 78% of your home's value when you closed - not today's value

FHA vs conventional loan.

If your MIP doesn’t auto-terminate, then you’re stuck paying mortgage insurance for as long as you keep your FHA loan. The only way to get rid of the MIP is to refinance out of FHA.

Home values are up, mortgage rates are down, and it’s easier today to qualify for a mortgage.  Depending on your situation, you could save hundreds each month and thousands over the long-term by lowering your rate and payment or shortening the term of your loan.

How Rob and Marta saved $258 per month

Rob and Marta refinanced their FHA loan last month. They switched from an FHA loan at 3.75% to a conventional loan at 4.0%. Although the rate on their new loan is a little higher, they cut their monthly payment by $258 per month because the new loan has no MIP.

Old FHA 30-year fixed from 2013

  • $215,000 property value
  • $202,000 starting loan amount
  • $936 mortgage payment @3.75%
  • $213 mortgage insurance payment

New conventional 30-year fixed

  • $235,000 property value
  • $186,700 loan balance and new loan amount
  • $891 mortgage payment @4.0%

FHA vs conventional loan

Save thousands by shortening your term.

You could save tens of thousands of dollars by refinancing into a shorter term loan.

If Rob and Marta went with the conventional 20-year fixed, they would have lowered their monthly payment by $42. Plus, they would have saved a whopping $71,000 in interest by paying off the loan ahead of schedule.  

Conventional 20-year fixed

  • $235,000 property value
  • $186,700 loan balance and new loan amount
  • $1,107 mortgage payment @3.75%

FHA vs conventional loan

What’s my house worth?

Get an idea of what your place is worth. You need at least 20% equity in your home before you can say goodbye to mortgage insurance forever. If your conventional loan is more than 80% of your property’s value, then you’ll pay mortgage insurance on the new loan.  

The only way to find out for sure is to apply for a mortgage. The lender will order an appraisal. Then the lender will use the appraised value to determine if your new loan needs mortgage insurance. Find out how to get rid of mortgage insurance on conventional loans.

Check a few free online tools to get an idea of the value of your property.

"Don’t take the online estimation too seriously. If you doubt the value, then check with your local real estate agent. Your agent will give more insight into the market value of your property - more than any online estimator.”

After only 4-years Rob and Marta have enough equity in their property to switch to a conventional loan with no mortgage insurance. They paid their loan down to $186,700, and their home’s value is up to $235,000.

Check Zillow’s Home Value Index to see if values are up in your area:

FHA vs conventional values

Do the benefits outweigh the cost?

Find out how much it will cost before you start on your refinance. Use our free closing cost calculator. Then figure out your break-even - when your savings will pay for the cost.

  • Closing costs ÷ Monthly savings = Months to break-even

Rob’s and Marta’s refinance cost $995, and they saved $258 per month. So it will take them less than four months to break even. After that, they’ll enjoy the extra cash. The benefits outweigh the cost.

  • $995 ÷ $258 = 3.9

Always shop and compare and get real numbers up front - before you commit to a lender. My article will help you get the best deal on a mortgage: How to get an accurate rate quote in 1 minute.

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