FHA MIP Refund Chart: A Guide On What It Is And How It Works

For borrowers with a Federation Housing Administration (FHA) loan, mortgage insurance is part of the cost of buying a home. That’s the bad news. The good news? Homeowners may be entitled to a partial refund on their initial FHA loan if they successfully apply for an FHA Streamline Refinance. The FHA MIP Refund Chart outlined below has more details on the amount borrowers working with these two loan products can expect to receive.

Let’s start, though, by looking at what an FHA MIP refund is. Then, we’ll explain how you can get one.

What Is An FHA MIP Refund?

Due to their relatively low interest rates, fairly relaxed debt-to-income ratio (DTI) and credit score requirements, and low minimum down payment, FHA loans can be a great option for those who meet certain eligibility requirements. However, borrowers are responsible for two types of mortgage insurance payments when utilizing any FHA loan to finance a home purchase. Here’s the breakdown:

• Upfront mortgage insurance premium (UFMIP): This is75% of the loan amount, due up front at the time of closing. Borrowers can choose to finance this amount and bring less cash to closing.
• Annual mortgage insurance premium (MIP): This is your annual premium, spread out over 12 months and added to your monthly mortgage payment. The amount is determined by the size of your down payment.

All FHA borrowers must pay a UFMIP and make ongoing MIP payments, but homeowners who refinanced their original FHA loan into an FHA Streamline Refinance may be eligible for an MIP refund.

What Is An FHA Streamline Refinance?

An FHA Streamline Refinance is a mortgage refinance backed by the FHA. This type of refinance allows you to refinance without an appraisal and quickly take advantage of lower interest rates.

As with every FHA loan, homeowners who close on their FHA Streamline Refinance must pay a new upfront MIP and continue to make monthly MIP payments. The MIP refund can help take some of the financial “sting” out of having to make these payments for a second time.

Who’s Eligible For An FHA MIP Refund?

As with any FHA loan product, an FHA MIP refund carries some requirements. To qualify for the FHA MIP refund:

• The refinance must result in a net tangible benefit to the borrower.
• The borrower must’ve closed on their FHA loan less than 3 years ago.
• The borrower must be up to date on mortgage payments.
• The borrower can’t have previous foreclosures.
• The borrower must be refinancing into another FHA loan.

FHA Streamline Refinance MIP Refund Chart

The amount of refund you receive will be a percentage of your original MIP, with the percentage determined by how long you had your original FHA mortgage. The longer you have your original FHA mortgage, the less of a refund you can expect to receive on your refinance.

If 18 months have passed since closing, your MIP refund would be 46%. Twenty-four months after closing is 34%, 30 months is 22%, and 36 months is 10%. The MIP refund continues to go down 2% for every month up to 80 months.

How To Calculate Your MIP Refund

Using the chart above for reference, let’s work out some real-life examples of the MIP refund a homeowner can expect to receive.

For all the examples below, we’re going to use the example of a homeowner who bought a $260,000 home with a 5% down payment. This gives us a total mortgage of $247,000. Since all FHA borrowers pay 1.75% in upfront MIP, this homeowner paid UFMIP of $4,323 at closing. The monthly MIP cost is $164 with a cost factor of 0.80%.

Net Tangible Benefit: Does An FHA Refinance Make Sense?

Because refinancing a loan comes with a new set of underwriting and loan costs, it’s important to run the numbers to ensure an FHA refinance would make sense for your situation. Usually, this means refinancing to a loan with a lower interest rate.

Meeting eligibility requirements doesn’t mean this is the right financial product for you. Refinancing only makes sense when homeowners receive a net tangible benefit. In other words, they recoup the cost of the loan refinance and enjoy savings over the life of the loan.

Downsides To FHA Streamline Loans

FHA Streamline Refinance loans are just one option available to homeowners seeking to refinance their home loan. An FHA Streamline Refinance has some downsides worth considering. For example:

• There’s a 7-month waiting period from the date of the original closing to ability to apply for FHA Streamline.
• Homeowners can’t get more than $500 cash back at closing, so they’ll need to factor in cash out-of-pocket for most closing costs.
• As with any new FHA loan, you’ll also have to pay another upfront MIP and monthly MIP, even if you have 20% equity in your home.

With these limits, it’s best to run the financials to see if refinancing to an FHA-specific product is the best deal.

Alternatives To Streamline Loans

A conventional mortgage is the chief alternative to an FHA Streamline Refinance. Homeowners approaching 20% home equity (or a loan-to-value ratio of 80% or less) may save more by refinancing to a conventional conforming mortgage loan to avoid paying mortgage insurance altogether. How does this work? Once a borrower reaches 20% equity in the home, conventional lenders no longer require private mortgage insurance (PMI).

To determine which scenario saves you more money, do your financial homework. Calculate how much refinancing to a conventional mortgage would save you on a monthly basis and how much you’d need to bring to closing. Then, use our FHA MIP Chart to determine your new upfront MIP and new monthly MIP calculations. From there, you can figure out how much you’d save at closing and on a monthly basis by refinancing your FHA loan to a conventional loan.

Do I Get A Cash Refund Of My Previous Upfront Mortgage Insurance Payment (MIP)?

When you hear the word “refund,” perhaps you think of a money from the IRS that comes during tax season. The MIP refund isn’t cash you receive in the mail or at closing, however. Instead, it’s a credit that gets applied to the upfront MIP (UFMIP) charge on your new mortgage.

The refund shouldn’t be seen as an incentive to complete an FHA Streamline Refinance. Rather, think of it as a reduction on the cost of a refinance you’d be doing anyway. An FHA Streamline Refinance is only worth it if it makes the most financial sense for the borrower, regardless of the MIP refund.

Can You Roll Your New Upfront MIP And Other Closing Costs Into My FHA Refinance?

You must pay the upfront mortgage insurance premium (UFMIP) at closing, which is where the MIP refund can really help reduce costs. Fortunately, with the Streamline Refinance, the upfront mortgage can be financed into the loan. For those low on cash, or those who want to keep more cash on hand, rolling UFMIP costs into your loan refinance can be a savvy money move.

The Bottom Line: Homeowners Completing An FHA Streamline Refinance Might Benefit From An MIP Refund

If you’re a current FHA loan holder and want to refinance to the FHA Streamline, you could benefit from the MIP refund credit, which applies to your new upfront MIP. Bear in mind, though, that even with the MIP refund, you may save more money with mortgage options that could free you of monthly MIP payments entirely – particularly if you have a substantial amount of equity in the home.

When refinancing your mortgage, knowledge is key. To begin to see how a refinance can benefit you, apply online today.