How To Get Rid of your FHA Mortgage Insurance Premium (MIP)
There are two types of MIPs
First, a little background on FHA loans. When you take out an FHA loan, you pay the Mortgage Insurance Premium (MIP) in two ways. When your loan is closed you pay the 1% Up Front MIP which is normally rolled into your mortgage amount but can also be paid at closing directly. As an example, if you closed on a $200,000 puchase with 3.5% down, then your upfront MIP would be $1930. The second type of MIP is the monthly. For many months following your closing you will pay the monthly MIP in an amount which varies depending on the chart shown below.
How you can cancel the Upfront MIP early
How you do this depends on what type of mortgage you have. For the purposes of this discussion we will limit your types of mortgage to two: 1) 15 year fixed 2) Any other FHA mortgage.
If you have a 15 year fixed mortgage, then canceling the premium is as simple as paying the balance of your mortgage down to 78% of the original loan to value (LTV). The LTV is your current loan balance divided by the lesser of the purchase price or the appraised value of your home at the time you took out your current FHA mortgage. With a 15 year loan, the 78% LTV is the only requirement, and you can get there either by paying down the principal on your own, or just waiting for the principal to reach 78% based on the normal payment schedule for your loan. At today’s rates, if you just make your normal payment, then the MIP will be removed in about 26 months.
If you have any other type of FHA loan, then two things must happen to cancel the monthly MIP.
- LTV reaches 78% (based on lesser of purchase price or appraised value at the time you took out your FHA loan)
- Monthly MIP has been paid for a minimum of 60 months.
Note that in either case, there is no action required on your part to remove the MIP. FHA will remove the MIP automatically
for you when the conditions discussed are met.
I have a 30 year loan and I want to get rid of my MIP
We are often asked this question, so we have created a mortgage calculator which is specifically intended to help you rid yourself of your MIP at the earliest possible time. If you plan ahead then you can remove your MIP in 5 years without a tremendous amount of pain. Let’s take our original example of a $200,000 purchase with 3.5% down on a 30 year fixed at today’s rate of 4.00% (APR 4.438%). Rolling in the MIP gives you an initial loan amount of $194,930. The monthly principal and interest payment on that loan is $930.63. Your monthly MIP payment is 1.15% of $194,930 divided by 12 months which is $186.81. Using our FHA MIP Removal Calculator (click the link to calculate for your own loan), you can remove this MIP in 60 months by paying an additional $288.09 per month starting with your first payment. At the end of month 60, your $186.81 MIP payment would drop off and if you chose to go back to the standard payment, then you could drop your principal and interest payment back to $930.63 and you would be rid of the $186.81 MIP payment.
Of course, your other option at that point would be to continue paying the additional $288.09. If you continued paying this amount for the life of the loan, your loan would pay off in 19 years. However, since you are already accustomed to the higher payment with the MIP, you could now add that $186.81 to your additional principal payments. If you did this, then your loan would pay off in just over 15 years.
This method gives you the flexibility of reverting to the 30 year payment if you need to, but gives you most of the advantages of the 15 year mortgage.
Note that there are two exceptions to the cancellation rule
- 203k Renovation Loans
Because these are not considered MMI loans by HUD, you will be required to keep the MIP for the life of the loan.Source: www.theryanmortgageteam.com