Kill FHA mortgage insurance by refinancing to conventional
If you bought your home with an FHA loan, you're paying mortgage insurance. Not for a couple of years. For the life of the loan. That's the rule for most FHA loans originated after June 2013, and it's one of the quiet reasons FHA borrowers end up paying more than necessary over a 30-year mortgage.
Conventional loans work differently. PMI on a conventional loan drops off automatically at 78 percent loan-to-value, and you can request cancellation at 80 percent LTV. If you have 20 percent equity in your home, refinancing from FHA to conventional can eliminate the monthly mortgage insurance entirely, often with a break-even so fast it's the clearest refi decision you'll ever make.
FHA MIP vs conventional PMI
FHA MIP (Mortgage Insurance Premium) has two components:
- Upfront MIP: 1.75 percent of the loan amount, paid at closing (typically rolled into the loan).
- Annual MIP: 0.45 to 0.85 percent of the loan balance, divided by 12 and added to your monthly payment. On most 30-year FHA loans with less than 5 percent down, this is 0.55 percent annual, which on a $300,000 loan is $1,650 a year or roughly $138 a month.
For FHA loans originated after June 3, 2013 with less than 10 percent down, the annual MIP continues for the life of the loan. It does not drop off when you hit 20 percent equity. HUD policy, not negotiable.
Conventional PMI (Private Mortgage Insurance) is required by Fannie Mae and Freddie Mac on conventional loans where the borrower puts less than 20 percent down. Rates range from 0.3 to 1.5 percent of the loan amount annually, depending on credit score, DTI, and down payment size. It drops off automatically under the Homeowners Protection Act of 1998 when the loan reaches 78 percent of the original home value, and the borrower can request cancellation at 80 percent LTV. There's no "lifetime" version on conforming conventional.
The refinance math
Scenario: $300,000 FHA loan at 6.25%, 27 years remaining, annual MIP of 0.55%, home value now $370,000. Current LTV is $300,000 / $370,000 = 81 percent. Close enough to 80 that a small principal paydown or a favorable appraisal can get you under the 80 threshold, which is exactly what you need for a conventional refi with no PMI.
Current monthly breakdown:
- Principal and interest: $1,864
- MIP: $138/month
- Total mortgage-related: $2,002
Refinance to conventional 30-year at 6.25% (same rate for simplicity), no PMI because LTV drops to 80 or below:
- Principal and interest: $1,848 (new 30-year amortization on $300k)
- PMI: $0
- Total mortgage-related: $1,848
Monthly savings: $154. Closing costs around $7,000. Break-even: 46 months (about 3.8 years). If you plan to stay 5+ years, this is a clear win.
Now factor in the rate drop that's usually available too. Refinancing into a 6.0% conventional (0.25 percent below the FHA market rate, which is typical) on the same $300k:
- P&I: $1,799
- PMI: $0
- Total: $1,799
Monthly savings: $203. Break-even: 35 months. Even better.
When you qualify
Conventional refinance requires:
- 80 percent LTV or lower (for no PMI). Higher LTV is allowed but reintroduces PMI.
- Credit score of 620 minimum, with better rates at 740+.
- DTI below 50 percent (most lenders).
- Two years of employment history, or two years of self-employment with tax returns.
- Two months of reserves (savings) for primary residence, more for investment properties.
Getting under 80 percent LTV is the step most FHA borrowers stumble on. Three paths:
- Home value appreciation. If your area has seen strong price growth since you bought, an appraisal might put you under 80 naturally. Check Zillow or Redfin for recent comps.
- Principal paydown. A one-time lump sum applied to principal can shift LTV below 80. If you're close, the math often works out to pay down enough to escape MIP.
- Mix of both. Modest appreciation plus a modest paydown.
Why not FHA streamline?
The FHA Streamline Refinance exists and is faster and cheaper than a full refinance. No appraisal, minimal documentation, often no credit pull. BUT it does not eliminate MIP. You're still on an FHA loan after the streamline. The MIP continues. If your goal is to kill the MIP, streamline does not accomplish it. You need to exit FHA entirely.
Streamline makes sense if your goal is a rate drop and you're happy staying in FHA. For MIP elimination, you need conventional.
The loophole: FHA loans originated before June 2013
If your FHA loan was originated before June 3, 2013, MIP drops off automatically when you reach 78 percent LTV (based on the original loan amount). If that's you, you might not need to refinance at all. Check your Note or loan documents for the origination date. Borrowers who got FHA loans in 2010-2012 are often paying MIP they shouldn't be. HUD changed the rule retroactively for new loans but not existing ones.
What about VA and USDA loans?
VA loans don't have monthly mortgage insurance at all. They have an upfront VA funding fee (1.25 to 3.3 percent of loan amount depending on circumstances), which is paid at closing or rolled in. No monthly MIP to eliminate.
USDA loans carry an annual fee similar to FHA MIP (0.35 percent typical) that is permanent for the life of the loan. Same strategy applies: refinance to conventional once equity allows, eliminate the fee. Savings typically $50 to $100 per month.
Points to confirm before pulling the trigger
- Order a Loan Estimate from at least three conventional lenders (Chase, Rocket Mortgage, Better.com, a local credit union). Compare page 2.
- Confirm the appraisal will come in at or above your current LTV target. Pull recent comps before applying.
- Run the break-even math including closing costs. The RefiCalc calculator handles this directly, input the total mortgage payment (P&I + MIP) as your current monthly, and the new P&I as the new payment.
- Confirm your credit score. Pull a free report from annualcreditreport.com. Dispute errors before applying.
The emotional math
Worth saying: eliminating monthly MIP feels good. Even if the math is marginal, paying a lender $138 every month for insurance on your behalf, with no cap, no drop-off, and no equity benefit to you, grates on people. The FHA MIP existed to let you buy the house with less down. It's done its job. Refinancing out of it when you qualify is the natural end of that bargain.
Related: refinance closing costs line by line, and the FAQ for PMI-specific questions.
Authority sources on FHA vs conventional: HUD FHA refinance programs, Fannie Mae refinance research, and the CFPB Loan Estimate guide for comparing conventional quotes.