How To Cancel Mortgage Insurance

This article will explain how to cancel your mortgage insurance for FHA loans (MIP) and for conventional loans (PMI). If you have any specific questions – please contact your Carlson Mortgage loan officer at any time.

How do I cancel my FHA MIP?

Despite what you’ve heard, FHA MIP is not permanent.

Some homeowners can simply let their mortgage insurance fall off; others need to refinance out of it.

With mortgage rates still low, and home values rising, many are choosing to do the latter. Homeowners are saving hundreds per month, even when they take on a higher rate.

How long does FHA MIP last?

FHA loans fall into two categories: those obtained before June 3, 2013 and applications dated after that.

FHA MIP cancellation depends on this classification because that’s when FHA rules changed.

→FHA loans for which you completed an application after June 3, 2013

Loan Term	Original Down Payment	MIP Duration
20, 25, 30 years	Less than 10%	Life of loan
20, 25, 30 years	More than 10%	11 years
15 years or less	Less than 10%	Life of loan
15 years or less	More than 10%	11 years

→FHA loans for which you completed an application prior to June 3, 2013

Loan Term	Original Down Payment	MIP Duration
20, 25, 30 years	Less than 10%	78% LTV based on original purchase price (5 years minimum)
20, 25, 30 years	10-22%	78% LTV based on original purchase price (5 years minimum)
20, 25, 30 years	More than 22%	5 years
15 years	Less than 10%	78% LTV
15 years	10-22%	78% LTV
15 years	More than 22%	No MIP

How to cancel FHA mortgage insurance

Most FHA homeowners today have a loan with the following characteristics

Opened after June 2013
Less than 10% down original down payment
30-year loan

Such a loan is not eligible for automatic mortgage insurance cancellation. The good news is that there are no restrictions on refinancing out of FHA into a conventional loan with no PMI. There are never any prepayment penalties on FHA loans, so you can refinance any time you want.

House values have risen dramatically over the past few years in some parts of Missouri. A home you put just 3-5% down on a few years ago could have enough equity to refinance without taking on new PMI. You only need about 20% equity to do so.

Am I eligible for FHA MIP cancelation?

If you received your FHA loan before June 2013, you are eligible for MIP cancelation after five years.

You must have 22% equity in the property, and you must have made all payments on time.

For homeowners with FHA loans issued after June 2013, you must refinance into a conventional loan and have a current loan-to-value of at 80% or greater.

Canceling conventional private mortgage insurance (PMI)

You have more options to cancel mortgage insurance if you have a conventional (non-government) loan with PMI.

You can simply wait for it to drop off. By law, lenders must cancel conventional PMI when you reach 78% loan-to-value (LTV) or you can call them and request cancellation once you reach 80%.

Many home buyers opt for a conventional loan, because PMI drops, while FHA MIP typically does not.

Keep in mind that most lenders base the 78% LTV on their last appraised value. If your property value has gone up substantially, contact the current servicer and check its requirements to cancel early.

The servicer may require a new appraisal, or rely on their own internal valuation tools to determine your home’s up-to-date value.

You can also cancel conventional PMI with a refinance. The appraisal for your refinance loan serves as proof of current value. If your loan amount is 80% or less of your current value, you do not incur new PMI.

Current FHA MIP rates

Current (2019) FHA MIP rates are as follows for 20-, 25- and 30-year FHA loans.

Original Loan Amount	Original Down Payment	Annual MIP
<$625,500	<5%	0.85%
<$625,500	>5%	0.80%
>$625,500	<5%	1.05%
>$625,500	>5%	1.00%

FHA loans with terms of 15 years or less qualify for reduced MIP, as low as 0.45% annually.

In addition, there is an upfront mortgage insurance premium (UFMIP) required for FHA loans equal to 1.75% of the loan amount.

You may be entitled to a partial FHA MIP refund if refinancing into another FHA loan within 3 years.

Refinancing into lower FHA MIP

You can use a conventional refinance to eliminate your FHA loan insurance altogether, or you can reduce your mortgage insurance premium by refinancing into another FHA loan.

You may have a higher rate of MIP than what is available today. Here is a history of FHA MIP.

Prior to January 2008: 0.50% annual MIP
October 2008: 0.55% annual MIP
April 2010: 0.55% annual MIP
October 2010: 0.90% annual MIP
April 2011: 1.15% annual MIP
April 2012: 1.25% annual MIP
April 2013: 1.35% annual MIP
January 2015: 0.85% annual MIP

If you received a loan in January 2013, for instance, you could refinance into today’s lower MIP and save $40 per month per $100,000 borrowed. Plus, you may save even more by getting a lower mortgage rate.

Keep in mind, though, that your FHA MIP will become non-cancelable, since your new loan will originate after June 2013, when FHA MIP rules changed.

Reduced upfront and monthly MIP for certain refinancing homeowners

If you received your FHA loan prior to May 31, 2009, you can receive lower MIP rates via an FHA streamline refinance.

Eligible candidates receive annual MIP of 0.55% (standard is 0.85%) and reduced upfront MIP of 0.01% (standard is 1.75%).

That’s a savings of $3,480 upfront and $50 per month on a $200,000 loan.

A word to homebuyers: Deciding between FHA MIP and conventional PMI

The obvious advantage to conventional PMI is that it drops off automatically – no refinance necessary. That’s not the case with FHA MIP.

Yet, many home buyers choose FHA and its mortgage insurance because it is more cost-effective. The following chart shows FHA and conventional PMI costs assuming 3.5% down.

Credit Score	FHA MIP Monthly Cost Per $100,000 Borrowed	Conv. PMI Monthly Cost Per $100,000 Borrowed	Monthly FHA Savings Per $100,000 Borrowed
720	$71	$80	$9
700	$71	$95	$24
680	$71	$115	$44
660	$71	$160	$89
640	$71	$170	$99

While FHA MIP is non-cancelable, it’s often the cheaper choice for home buyers.

Are there lenders that specialize in FHA-to-conventional refinances?

Any lender that offers conventional loans by Fannie Mae and Freddie Mac can help you cancel your FHA MIP via a refinance. Here, at Carlson Mortgage, we’ve done dozens of these refinances all over Missouri in the last few years.

Can you take cash out when you do a mortgage insurance elimination refi?

Some homeowners with a lot of equity built up may be eligible to tap into that equity via a cash-out refinance.

Conventional cash out loans allow you to take up to 80% of your home’s value. If that’s more than your existing balance, you get to keep the extra cash, plus, avoid PMI.

FHA also has a cash-out offering, deemed the FHA cash out refinance. It allows loans up to 85% of your home’s value. However, you will still pay FHA mortgage insurance. So it’s best to consider the conventional version first.

When home values rise, cancel your FHA MIP

Paying FHA mortgage insurance doesn’t have to be permanent. You just have enough equity to refinance into a conventional loan.

According to the National Association of REALTORS®, the median home listed for sale in the U.S. was $269,600 in July 2018. That’s 4.5% higher than one year ago.

Some experts predict continued appreciation for years to come.

That means more homeowners will be in a position to refinance out of FHA, and very soon.

Once homeowners reach 20% equity based on current value, they can refinance into a conventional loan — one that does not require any mortgage insurance whatsoever.

How to refinance out of any home loan with mortgage insurance

The process to do so is straightforward. Get an estimate of value from a local real estate agent or loan officer. Online home valuation websites can be inaccurate, so be careful with those.

See if you have around 20% equity based on your home’s estimated value. Be sure to add closing costs onto your existing loan balance if you do not wish to pay them out of pocket.

For example, you purchased a home three years ago.

Original purchase price: $200,000
Original FHA loan amount: $196,375
Payment with FHA MIP: $1,186

After three years, you’ve paid off principal, and your home’s value has risen. Both of these factors help you cancel your FHA MIP.

New conventional loan amount: $188,000
Current Value: $235,000
Loan-to-value: 80%
New payment (no PMI): $898

Refinancing out of FHA MIP can yield substantial savings. Homeowners who received an FHA loan prior to January 2015 are paying quite high FHA mortgage insurance premiums. This is because FHA dropped premiums by 35% in 2015, but only for new FHA applicants.

Pre-2015 FHA home buyers can get a double savings effect: they are tapping into today’s low rates and canceling high FHA mortgage insurance, with one refinance.

How Do I Get Started?

Posted by: Carlson Mortgage – a top-rated St. Louis mortgage broker providing home loans in the state of Missouri. We are routinely ranked as a #1 mortgage broker in Missouri on Yelp, Google and Zillow. We can be reached at (314) 329-7314 seven days a week.

Our loan application can be found here or you can call us at 314-329-7314 to speak with one of our mortgage loan officers. Also, here is our pre-approval page, if you are looking to buy a home or need a referral to a top real estate agent.

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