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  4. PMI and MIP: Understanding Mortgage Insurance

*Editor’s note: We’ve updated the post below with information regarding changes in PMI and MIP rules. For the most up-to-date information, please leave a comment below or email us at ZingBlog@QuickenLoans.com and we’ll answer your questions!

Many homeowners pay it and many home buyers try to avoid it … mortgage insurance. You may be wondering, “What’s mortgage insurance and why do I have to pay for it?” Conventional mortgages have private mortgage insurance (PMI). FHA loans have a different insurance structure, and you pay what’s called a mortgage insurance premium (MIP). Here’s more information on both, and how they may affect your payments when you purchase a home or refinance your mortgage.

What is mortgage insurance?

Mortgage insurance is required for most home loans that don’t have at least a 20% down payment. It’s bought and paid for by the homeowner, but it offers them no coverage. In a nutshell, it’s there to protect the investor (who buys the loan on a secondary market) if the loan goes into default. There are a couple of different types of mortgage insurance depending on your loan.

Conventional Loans: Private Mortgage Insurance (PMI)

As part of the loan guidelines set out by Freddie Mac, Fannie Mae and most investors in conventional loans, a borrower is required to pay PMI when at least 20% of a home’s purchase price is not provided as a down payment.

Investors view the down payment as additional evidence that you are financially prepared to take on the debt of a monthly mortgage payment. The larger the down payment, the more you can prove to the investor that you will not be at risk of joining the default statistics.

When obtaining a mortgage, it’s important that you find a loan that fits your specific situation and goals. Quicken Loans offers the PMI Advantage program, in which borrowers can choose a slightly higher interest rate to take advantage of lender-paid PMI. Learn more about PMI Advantage.

FHA Loans: Mortgage Insurance Premium (MIP)

While conventional loans have more strict underwriting guidelines, FHA-insured loans require a small amount of cash to close a loan. As a result, all borrowers must pay MIP to insure the investor against loss if the homeowner defaults on the mortgage. While there are ways to avoid PMI with conventional loans, there is no way to avoid MIP on FHA loans because the minimum down payment is only 3.5%.

Whether MIP can ever come off your FHA loan depends on a few factors, including when it was originated, the amount of your down payment, and the current loan-to-value (LTV) ratio.

For originations on or after June 3, 2013, FHA requires MIP to be paid for 11 years if your original LTV is 90% or lower, and for the life of the loan if it’s over 90%. For more details, visit this post.

MIP amounts were also decreased for all originations on or after January 26, 2015. For more information on the cuts, check out this post.

For loans originated as of October 4, 2010, if your FHA term is more than 15 years, your monthly mortgage insurance payments will be cancelled when the LTV reaches 78%. This is calculated based on the original value of your FHA home loan and only if you paid the annual MIP amounts for at least five years. If the term of your FHA loan is 15 years or less, with an LTV of 90% or greater, the monthly mortgage insurance payments will stop when the LTV reaches 78%. Mortgages with an LTV of 89.99% or less will not be charged annual mortgage insurance premiums. If your loan was originated on or after April 18, 2011, FHA made a change to their MIP factors which impacted the 15-year loan. Now, there is MIP on LTVs greater than 78%. LTVs less than or equal to 78% do not require MIP, however not all lenders have followed suit with the 0% MIP on LTVs less than 78%.

 

For investors, it’s true that insurance replaces the unknown with security. For home buyers and homeowners, the best strategy is to obtain a mortgage that meets your needs, your pocketbook and your financial goals.

If you have any questions on PMI or MIP, leave us a note in the comments and we’ll be happy to respond.

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This Post Has 146 Comments

    1. Hi Terri:

      Based on the down payment you mentioned, I’m assuming you have an FHA loan. Given the time frame in which you brought your house, if you have a 15-year term your mortgage insurance will automatically come off when you reach 22% equity in your home. If you have any other term length, mortgage insurance will come off when you reach 22% equity provided you’ve made payments for at least five years. Hope that helps!

      Thanks,
      Kevin Graham

  1. I purchased my home in March 2014 and pay MIP. My LTV is 90.1. When will MIP be removed? Note, I have done some remodeling that would raise appraised value.

    1. Hi Hector:

      Unfortunately, if you purchased a home at that time with less than a 10% down payment, MIP will never be removed from an FHA loan. However, you can refinance and eventually have mortgage insurance removed down the line. If your appraised value has gone up due to remodeling, that might also help mortgage insurance payments come off faster. I’m going to have someone reach out to you to go over your options.

      Thanks,
      Kevin Graham

  2. I’ve tried posting a comment and am getting a notification that duplicate comments have been detected, but the comment never appears.

  3. Great information! Thanks for making this available and doing so clearly. Any time I have tried to discuss this subject with my lender or other potential lenders, they don’t seem to really know the information you’ve provided.

    I closed on my home in May 2013 with a 30-year fixed FHA loan with 3.5% down. My loan was almost immediately sold and set up with my current lender on June 9, 2013. The article mentions that MIP is required for the life of the loan with an LTV of 90% or higher for loans originated on or after June 3, 2013. Since my loan was originally set up in May 2013, I am assuming that the rules in place prior to June 3 apply to my loan, even though my current lender didn’t get the loan until June 9. Is this accurate? If so, is it correct that my MIP will automatically be canceled and removed from my loan after 5 years (in 2018) and after the LTV has reached 78% of the original home loan amount?

    Example:
    $200,000 loan set up in May 2013 with FHA 30-year fixed and 3.5% down.
    The loan is sold to a new lender on June 9, 2013.
    After the loan balance is $156,000 and assuming it is past May 2018, the MIP will automatically be removed from the loan with no action required by the borrower.

    Is this accurate?

    1. Hi Heather:

      It’s very likely that what actually happened is that they sold the servicing rights for your loan. Even if they actually sold your loan, it’s not a new one that you agreed to. The important date should still be May 2013. I’m going to get you to a Home Loan Expert who can confirm.

      Thanks,
      Kevin Graham

        1. Thanks, Heather! That’s one to save for my team leader. 🙂 I did want to address why your comment doesn’t appear right away. We have a 24 hour delay on comments showing up in order to speed up page load times.

  4. If you have a FHA loan and pay PMI/MIP mortgage insurance; what and who does it cover? Does it cover pay off on home if person with loan passes away?

    1. Hi Amanda:

      Mortgage insurance is something you have to get if you make a down payment lower than 20%. It protects the lender and investor in the mortgage against the possibility that a borrower will default and go into foreclosure. Although it’s meant to protect investors and lenders, mortgage insurance opens up opportunities for borrowers by enabling lower down payments. On an FHA loan, MIP doesn’t come off unless you make a down payment of 10% or more. However, you can refinance into a conventional loan in order to get rid of mortgage insurance once you reach 20% equity in your home. Hope this helps!

      Thanks,
      Kevin Graham

      1. In order to reach 20% equity in my loan, I would have to refinance as the market has gone up, correct ? And then be eligible to discontinue paying MIP ?

        1. Hi Stephanie:

          That would be one way to do it. The other way would be to reach 20% equity based on the original great value, assuming that your value hasn’t dropped at all. Also, in order to drop mortgage insurance payment at 20% equity, it has to be a conventional loan. If you do choose to refinance, we can help you look into your options online through Rocket Mortgage or by speaking with one of our Home Loan Experts at (888) 980-6716. Hope this helps!

          Thanks,
          Kevin Graham

  5. my husband recently passed. my name was not on the mortgage nor did he have a will. I have alll the ;;;;;court documents that ;make me heir to the home. I paid off the mortgage while it is still in his name. my brother is having a fit saying i should of gotten title insurance before paying it off. it was a FHA loan originated in 1987. what should i do ? texas

    1. Hi Myra:

      Sorry to hear about your loss. I’m not an expert in title insurance issues, but I’m going to pass your comment along to someone that can get you more information.

      Thanks,
      Kevin Graham

  6. Hi, I purchased an FHA loan November 2011 and put 3.5% down. I paid an upfront mip of 1% and I was wondering if you knew how the annual mip is calculated. My annual mip does go down each year but only by $50 or so. I can’t find a formula/calculator that gives me the right numbers. Thanks!

    1. Hi Elizabeth:

      I don’t have a chart, but I’m going to get you to someone that might be able to give you more information or point you in the right direction.

      Thanks,
      Kevin Graham

    1. Hi Julie:

      It depends on when you got your loan. If your loan closed before June 3, 2013, MIP stays on the loan until you’ve reached 78% equity on a 15-year term. For terms other than 15 years, MIP is canceled when you reach 78% equity provided you’ve paid MIP for at least five years. If you got your loan on or after June 3, 2013, MIP can be canceled after 11 years if you’ve made a down payment of 10% or greater. Otherwise, MIP stays on the loan for life.

      Hope this helps,
      Kevin Graham

  7. My mom has a reverse mortgage and she just passed away. We noticed the banks have charged her PMI for this loan every month. It is a HECM loan. The home is worth a lot more than the reverse mortgage. We do not have enough money to pay the mortgage at this amount. Why was she charged a PMI

    1. Hi Carolyn:

      We’re sorry to hear about your loss. I’m going to pass your comment along to our team at One Reverse Mortgage. They’ll be able to reach out and gather more information on your situation so they can better answer your question and go over your potential options.

      Thanks,
      Kevin Graham

  8. I have an FHA 30-year loan that originally opened in November, 2009, but I refinanced into the same loan, just a lower interest rate in October 2010. It has now been over 5 years, and our LTV is 72% – well under the 78%. However, we are still being charged MIP (including just yesterday – 1/6/16).

    Do I need to contact my bank (BofA) or HUD? Last time BofA said it will automatically cancel, yet it hasn’t. I can imagine contacting HUD will be a nightmare. Thoughts? This happen to anyone else before?

    1. Hey David:

      I would contact your bank first. The MIP seems like it should cancel based on the timeline and LTV scenario you’re providing. I’m going to send this comment to someone on our Client Relations team, though. They can gather more information from you and provide next steps if the MIP can be canceled. Good luck!

      Thanks,
      Kevin Graham

    1. Hi Mary:

      I’m going to get you to someone who can answer this question better than I can. Thanks for reaching out!

      Kevin Graham

  9. Its may have already been answered, but if my loan is an FHA than I cannot have PMI on it rather have to have MIP on it, is that correct? I am so confused b/c i reached 78%, purchased the home in Nov. of 2012 and now I am being told I have to keep my PMI for at least 5 years, since I was a first time home buyer. I was told sine my loan is conventional i need to bring it down to 80% and PMI will go away. I re-looked at the paper work it has my loan as FHA. I am confused, bought the house when I was 22 now I am 25 and have a better understanding of finance. Please advise.

    1. Hi Saddam:

      Let’s break this down for you. First, if you have an FHA loan, you definitely have MIP and not PMI. Your lender probably misspoke. It’s very easy to get the acronyms jumbled. Since you bought your home in 2012, your MIP can come off the loan when you reach 78%. However, if the term is for any length other than 15 years, you do have to pay MIP for at least five years. It can be canceled after that point. I know it’s not what you want to hear, but hopefully it clarifies things.

      Thanks,
      Kevin Graham

  10. How does refinancing impact the number of years that MIP has to be paid on a FHA loan? In other words, which date takes precedence for determining the loan origination date – the one from the first loan or the one from the refinancing loan?

    1. Hi Fabian:

      Unfortunately, the streamline is a new loan and when you get a new loan, the number of years you’ve been paying for mortgage insurance resets. It doesn’t carry over. I wish I could give you better news, but hopefully this clarifies things.

      Thanks,
      Kevin Graham

  11. The lender im going with is charging me a fee of 3500.00 for MIP which is being added to my morgage and a monthy fee of $132.00 a month. I didnt know what a MIP was so I looked it up, it said they determine whether you pay the lump sum OR a monthly fee. Is this true or can they charge for both?

    1. Good morning Kristine:

      MIP payments depend very much on your personal financial profile. There are situations in which you could pay for MIP both upfront and on a monthly basis. Since every situation is different, I suggest you speak to your lender and ask them to explain why you are being charged for both payments. They should have a better understanding of your personal circumstances. That said, we would love to take a look at your financial profile and see if we can offer you a better deal than the one you currently have if you’re interested. One of our Home Loan Experts will be in contact with you.

      Thanks,
      Kevin Graham

      1. I am experiencing the same issue. my lender is telling me the upfront fee of roughly 3,000 and is being rolled into my loan and is mandatory on an FHA. I understand that MIP is mandatory on an FHA loan, but they are also trying to charge me on top of that monthly and telling me that is also mandatory. Assuming what I read above BOTH are not mandatory per say. It is up to the investor on weather or not to choose both or one of the two correct, of course depending on your personal profile?

        1. Hi Misty:

          it does really depend on what you’ve got going on from a personal financial standpoint and I’m going to pass your comment along to a Home loan Expert to find out more about your situation and why your loan is set up the way it is. I can tell you that it’s not uncommon to pay both upfront and monthly MIP.

          Thanks,
          Kevin Graham

  12. I am confused.
    Is there mortgage insurance on 65% LTV FHA loans?
    Is there mortgage insurance on 65% LTV FHA refinancing? (Original loan is conventional)

    1. Hi Cindy:

      If you refinance an FHA loan with 65% LTV under current rules, mortgage insurance premiums are canceled after 11 years. Hope this helps!

      Thanks,
      Kevin Graham

  13. I have a conventional loan with PMI that I pay monthly. If I default on my loan the bank will still get paid right? Will the mortgage insurance pay the bank the entire balance of the loan? What actually happens in that situation? What happens to the house?

  14. I am refinancing my 2009 30 FHA loan into a 15 year FHA and I am being asked to pay PMI monthly and MIP at closing. Is it typical to have both PMI and MIP. I do understand the difference as you described on your website, but didn’t understand why I would have to pay both. I did look at my current loan and it looks like they are both on there as well.

    Thanks

    1. That’s an interesting situation, Mickey. We need to ask some more questions to get to the bottom of this. I’m going to have a home loan expert send you an email. We’ll figure this out!

  15. I have paid 16 years on an FHA mortgage loan. I am trying yo refinance for a lower interest rate for 14 years. What steps can I take to avoid having to pay for mortgage insurance monthly? The mortgage company has included it.

  16. The LTV always refers to the loan amount compared to the sales price. Example , if you were buying a house that cost 100,000 and your loan amount was 80,000 your LTV would be 80%.

  17. I have a question on what is considered “the original value of your FHA home loan”.

    Is this the amount of the original appraisal, or is this the original loan amount? My home appraised for 16% more than what I paid. I have been paying MIP for over 5 years and my current loan-to-value (LTV) based on original appraisal is 74 percent. The bank is refusing to remove the MIP insurance based on a Loan to Original Loan Amount of rather than Original Value of the home.

    Does anyone know about this? I have not read anywhere on any website that Original Value is the original LOAN amount. I would think if this were they case they would just call it that rather than Original Value.

    Any help on this subject would be appreciated!!

    1. Hi Rachel! Thanks for your comment. I’ve passed your comment on to our home loan experts who will be in touch with you soon.

  18. […] ago, it was common for most people to put a down payment of 20 percent toward their home to avoid Private Mortgage Insurance (PMI). However, over the last several years, it’s become common for people to seek a home loan […]

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