Mortgage Insurance Premium (MIPs) are fees that safeguard lenders from the risk of borrowers defaulting on their loans. MIPs are required for certain types of loans, including FHA and USDA loans. MIPs can also be utilized for traditional loans, depending on the borrower’s credit score and down payment.
FHA loans need both an upfront (UFMIP) and an annual MIP. The Upfront Mortgage Insurance Premium (UFMIP) can be rolled into your loan amount, while the annual Mortgage Insurance Premium (MIP) is included in your monthly mortgage payments. When you close on a home with an FHA loan, you are subject to an upfront MIP charge, which is determined as a percentage of the home’s sales price. An additional insurance cost is also included in the monthly payment for an FHA loan.
How Does Mortgage Insurance Premium Work?
FHA-backed lenders employ mortgage insurance premiums to protect themselves from higher-risk customers. FHA loans require a down payment of as little as 3.5% and a credit score as low as 580, so default is a major risk.
FHA mortgages require all borrowers to have mortgage insurance. In comparison, conventional loans only mandate private mortgage insurance (PMI) if the down payment is less than 20% of the home’s purchase price. Every FHA loan includes an upfront premium of 1.75% of the loan amount, along with an annual premium that ranges from 0.15% to 0.75%. The upfront premiums are paid at the time the loan is issued. The actual yearly cost is determined by the loan’s length, amount borrowed, and loan-to-value ratio (LTV).
Each month, the loan’s payment amount will include the annual premium split by 12 months, as well as the principal payment. Other fees typically added to the monthly cost include escrow sums for property taxes and homeowner’s insurance.
How Much Does Mortgage Insurance Cost?
The FHA uses a specific formula to determine the cost of mortgage insurance premiums, which is based on factors such as the loan amount, the size of the down payment, and the mortgage term.
The simplest approach to estimate your monthly MIP is to utilize an online calculator. The FHA’s online My Payment Calculator is. You will need to enter the following information:
- Purchase price:
- Size of your down payment
- Interest Rate
- Loan Term
- State in which the house is located
Based on the information provided, the calculator generates an estimate of your total payment. It includes the dollar cost of your FHA mortgage insurance premium.
For example, the calculator estimates that a loan for a $250,000 California home with a 3.50% down payment, 4.25% interest rate, and a 30-year term will result in a total monthly payment of around $1,615. The monthly mortgage insurance premium amounts to around $170.
The upfront mortgage insurance premium is calculated using a straightforward formula: 1.75% of the loan amount, which equals $1,750 for every $100,000 of the base loan. This figure is also provided by the FHA calculator. In the previous example, the UFMIP came out to approximately $4,200.
Who Has to Pay Mortgage Insurance Premiums?
Many borrowers do not pay their mortgage insurance. If a loan is conventional, as most are, only borrowers who put down less than 20% of the home’s purchase price are typically required to obtain mortgage insurance.
However, all FHA borrowers are required to pay mortgage insurance charges. There are two types: upfront and annual premiums.
How Long do you have to pay?
Not all FHA borrowers are required to pay the monthly mortgage insurance premium for the life of the loan. Borrowers who took out a loan before June 2013 can request that their loan servicer stop charging the monthly payment once they have paid off 22% of the debt.
The rules for getting an FHA loan now, however, are different. If you put down more than 10% but less than 20%, you will pay mortgage insurance charges for 11 years. If you put down less than 10%, you’ll be required to pay monthly premiums for the duration of your FHA loan.
The only method to eliminate the monthly payments is to pay off the FHA loan in full. The most typical approach to accomplish this is to refinance with a standard mortgage. If the conventional refinance loan is more than 80% of the home’s value, you may still be required to pay private mortgage insurance.
Frequently Asked Questions
How much is MIP per month?
To calculate the monthly MIP for a 30-year fixed-rate mortgage with a down payment under 5%, multiply the base loan amount (excluding UFMIP) by the 0.55% MIP rate, then divide the result by twelve. For example, on a $100,000 loan, the monthly MIP would be $45.83.
 What is the FHA Mortgage Insurance Premium (MIP)?
FHA mortgage insurance premiums (MIP) are extra costs that borrowers pay both upfront and over the life of the loan. Premiums are required for all FHA borrowers. Most FHA borrowers must pay them for the life of their 30- or 15-year loan term. However, the FHA MIP does not safeguard the borrower.
How do you determine when PMI ends?
 Multiply your initial home purchase price by 0.80 to approximate the amount of mortgage balance required to be eligible for PMI cancellation. Who is this affecting? Homeowners with a lot of spare cash can use this strategy to gain 20 percent equity faster.
