Quick overview
Mortgage insurance lets borrowers with smaller down payments buy homes while protecting lenders if the borrower defaults. It comes in several forms:
- Private Mortgage Insurance (PMI) on conventional loans.
- Mortgage Insurance Premium (MIP) on FHA loans.
- No PMI for VA loans, but a VA funding fee may apply.
Each type has different cost structures and cancellation rules. The Homeowners Protection Act (HPA) gives borrowers the right to request PMI cancellation on conventional loans and requires automatic termination at a specified point. FHA MIP follows HUD rules that differ from PMI, and VA loans use a different fee structure handled by the Department of Veterans Affairs (VA).
(Authoritative sources: Consumer Financial Protection Bureau, U.S. Department of Housing and Urban Development, Department of Veterans Affairs.)
How mortgage insurance is charged
There are several ways mortgage insurance premiums are paid:
- Monthly premium added to your mortgage payment (most common for borrower-paid PMI).
- Upfront single premium (a one-time fee paid at closing or rolled into the loan). FHA’s Up-Front Mortgage Insurance Premium (UFMIP) is an example (UFMIP is typically 1.75% of the base loan, see HUD.gov).
- Lender-paid mortgage insurance (LPMI), where the lender pays the insurer and charges a slightly higher interest rate instead. LPMI typically cannot be canceled by borrower request — it ends only if you refinance or pay down the loan.
- Split-premium or single-premium PMI options that mix upfront and monthly charges.
Why the cost varies: insurers price based on the borrower’s credit score, loan-to-value (LTV) ratio, loan type (fixed vs. adjustable), and loan size. Industry ranges for borrower-paid PMI typically run between 0.3% and 1.5% of the loan balance annually, but higher-risk borrowers can pay more.
When mortgage insurance ends: rules by loan type
Below are the standard rules as of 2025; check your loan paperwork and servicer for exact terms.
Conventional loans (PMI)
- Request cancellation: You can request PMI cancellation when your principal balance reaches 80% of the original value (80% LTV) based on the original property value or purchase price, assuming you are current on payments and meet other lender conditions. The Homeowners Protection Act outlines these rights (see CFPB explanation).
- Automatic termination: PMI must be automatically terminated by the servicer when the outstanding principal balance reaches 78% of the original value (78% LTV), provided the borrower is current on payments.
- Early removal via appraisal: If home values have risen, you may ask the servicer for PMI removal sooner by demonstrating lower LTV through a permissible appraisal — you may pay for the appraisal out of pocket.
FHA loans (MIP)
- FHA loans use an Up-Front Mortgage Insurance Premium (UFMIP) and an annual MIP that is typically paid monthly.
- For FHA case numbers assigned on or after June 3, 2013:
- If the original LTV was 90% or less and the loan term is more than 15 years, annual MIP stops after 11 years.
- If the original LTV was greater than 90% and the loan term is more than 15 years, annual MIP generally lasts for the life of the loan.
- For loan terms of 15 years or less, annual MIP stops after 11 years regardless of original LTV.
- You can remove FHA MIP only by refinancing into a conventional loan (once you have sufficient equity) or by satisfying the 11-year rule where applicable. (Reference: HUD/FHA MIP rules.)
VA loans
- VA loans do not require PMI. Instead borrowers typically pay a one-time VA funding fee (amount depends on down payment size and whether the borrower has used VA loan benefits previously). The funding fee is not mortgage insurance and does not cancel — it is paid at closing or financed into the loan. See VA.gov for current funding fee details.
USDA loans
- USDA loans include a guarantee fee (upfront and annual) that functions similarly to mortgage insurance; cancellation rules are different and often require refinancing into a conventional loan to remove.
Practical examples and a simple calculation
Example 1 — PMI on a conventional loan:
- Purchase price: $300,000
- Down payment: 10% ($30,000)
- Loan amount: $270,000 (LTV = 90%)
- Annual PMI rate (example): 0.6% of loan balance
Annual PMI = 0.006 × $270,000 = $1,620
Monthly PMI = $1,620 / 12 = $135
If you make regular mortgage payments, once principal drops to $240,000 (80% of original price), you can request PMI cancellation. If the loan balance reaches $234,000 (78% of original), the servicer must cancel PMI automatically (if payments are current).
Example 2 — FHA loan with UFMIP:
- Loan amount: $300,000
- UFMIP (1.75%) = $5,250 (either paid at closing or financed into the loan)
- Monthly MIP also applies and depends on loan term and LTV.
How to get mortgage insurance removed (action checklist)
- Check your mortgage statements and note your current principal balance and the original sales price or original appraised value.
- Estimate your original LTV and track when your loan balance will hit 80% or 78% of the original value.
- Keep payments current — servicers won’t cancel PMI if you’re delinquent.
- When you hit 80% LTV by schedule, submit a written PMI cancellation request to your loan servicer and ask what documentation is required (often a written request, proof of no subordinate liens, and a current appraisal in some cases).
- If your home’s market value increased, you can ask for removal based on a new appraisal; be prepared to pay appraisal fees.
- Consider refinancing to a conventional loan once you have 20% equity to eliminate FHA MIP or LPMI or to get a lower rate.
For PMI cancellation rights and sample letters, see the Consumer Financial Protection Bureau’s guide on private mortgage insurance (CFPB).
(Internal resources: For strategies on early PMI removal, see our guide Strategies to Remove Private Mortgage Insurance (PMI) Early. If you’re comparing insurer-paid options, read Lender-Paid Mortgage Insurance (LPMI).)
Common mistakes borrowers make
- Assuming mortgage insurance is the same across loan types. PMI, FHA MIP, VA funding fees, and USDA guarantee fees behave differently.
- Waiting for an automatic cancellation when refinancing might be faster. Refinancing can eliminate mortgage insurance if you qualify for a conventional loan with <80% LTV and better rates.
- Forgetting to ask: many servicers require a written cancellation request at 80% LTV.
When you might keep mortgage insurance intentionally
- To buy down your interest rate: In some lender-paid or split-premium structures, paying for mortgage insurance or choosing LPMI might get you a lower interest rate for a set period.
- If you expect house prices to stagnate, continuing monthly PMI while you build equity might be cheaper than refinancing costs.
Professional tips from a lending advisor
- Track your home’s value annually. Use county records and a licensed appraisal to document appreciation if you plan to request PMI removal early.
- Prioritize high-return moves: if you can refinance at a materially lower interest rate without paying big closing costs and you’ll remove MIP/PMI, it’s often worth it.
- When planning your down payment, compare the cost of mortgage insurance versus the benefit of investing that money elsewhere. Sometimes putting more down saves you more long-term by avoiding years of premiums.
Useful links and resources
- Consumer Financial Protection Bureau — guide to private mortgage insurance (PMI) and the Homeowners Protection Act (CFPB).
- U.S. Department of Housing and Urban Development — FHA mortgage insurance rules (HUD/FHA).
- U.S. Department of Veterans Affairs — VA funding fee details (VA.gov).
Internal reading on FinHelp.io:
- Strategies to Remove Private Mortgage Insurance (PMI) Early: https://finhelp.io/glossary/strategies-to-remove-private-mortgage-insurance-pmi-early/
- Lender-Paid Mortgage Insurance (LPMI): https://finhelp.io/glossary/lender-paid-mortgage-insurance-lpmi/
- Private Mortgage Insurance (PMI): https://finhelp.io/glossary/private-mortgage-insurance-pmi/
Professional disclaimer
This article is educational and based on published federal rules and industry practice as of 2025. It is not personalized financial, legal, or tax advice. For guidance about your specific loan, contact your mortgage servicer or a licensed mortgage professional.
If you want, I can add a one-page sample PMI cancellation letter and a calculator you can paste into a spreadsheet to estimate when your loan will hit 80% LTV.
