Mortgage Insurance: PMI, MIP, and When It Drops Off

Quick overview

Mortgage insurance is a lender-protection product that makes lower-down-payment mortgages possible. For conventional loans it’s called private mortgage insurance (PMI); for FHA-insured loans it’s called mortgage insurance premium (MIP). The two are similar in purpose but work differently in duration, cost, and cancellation rules — and those differences determine when, or whether, the insurance stops.

(Author’s note: I’ve spent 15 years advising homebuyers and reviewing hundreds of mortgage servicing practices. The guidance below reflects both that experience and current federal guidance from the Consumer Financial Protection Bureau and the U.S. Department of Housing and Urban Development — see links below.)

Sources: CFPB on PMI and the Homeowners Protection Act (HPA) and HUD on FHA MIP. See: https://www.consumerfinance.gov and https://www.hud.gov/program_offices/housing/comp/mip

How PMI and MIP differ (short primer)

• PMI (Private Mortgage Insurance)

• Applies to conventional mortgages when the borrower’s down payment is less than 20%.

• Typically paid monthly, but can sometimes be paid upfront or financed.

• Insurer rates vary by borrower credit score, LTV, and loan type (conforming vs. jumbo).

• Federal law (Homeowners Protection Act) governs cancelation rules for PMI.

• MIP (Mortgage Insurance Premium)

• Applies to FHA-insured loans and includes an upfront premium (UFMIP) and an annual premium.

• UFMIP is often about 1.75% of the loan amount (can be financed into the loan). Annual MIP rates vary by LTV, loan term, and loan amount (commonly 0.45%–1.05% on recent FHA loans but check current HUD tables).

• Duration depends on the loan’s origination date and original LTV — in many cases MIP lasts for the life of the loan.

For deeper reading on alternatives and variations, see FinHelp’s pages on Private Mortgage Insurance (PMI) and Lender-Paid Mortgage Insurance (LPMI):

• Private Mortgage Insurance (PMI): https://finhelp.io/glossary/private-mortgage-insurance-pmi/
• Lender-Paid Mortgage Insurance (LPMI): https://finhelp.io/glossary/lender-paid-mortgage-insurance-lpmi/

When does PMI drop off?

PMI cancellation is governed by the Homeowners Protection Act (HPA) and specific lender servicing rules. Key points:

1. Cancellation by borrower request at 80% LTV

• You may request PMI cancellation when your principal balance reaches 80% of the original home value (an LTV of 80%), provided you meet lender conditions: current payments, no subordinate liens, and the property hasn’t declined in value. Lenders will usually require a written request and may ask for an appraisal or broker price opinion to show current value.

1. Automatic termination at 78% LTV

• By law, the servicer must automatically terminate PMI when your principal balance reaches 78% of the original value (22% equity), as long as your loan is current.

1. Midpoint termination for certain loans

• If your loan has an original term longer than 15 years, additional timing rules may apply for mid-term cancellations. Your loan disclosures and servicer can provide the precise expected termination date.

1. Value appreciation and early removal

• If your home has increased in market value, you can request removal earlier than scheduled by providing an appraisal (at your expense) showing that the current LTV is 80% or lower based on the current market value. Note servicers can set reasonable standards for acceptable appraisals.

Example: A $300,000 purchase with 5% down finances $285,000. To request PMI cancellation you’d need your loan balance to fall to $240,000 (80% of $300,000). If you make extra principal payments or your home appreciates, you can reach that balance sooner.

For practical strategies to accelerate PMI removal, see FinHelp’s guide: Strategies to Remove Private Mortgage Insurance (PMI) Early: https://finhelp.io/glossary/strategies-to-remove-private-mortgage-insurance-pmi-early/

Author’s practical tip: When you plan to ask for cancellation, get a current amortization payoff schedule from your servicer so you know the exact date the balance will hit the threshold — and confirm any appraisal or seasoning requirements they may impose.

When does FHA MIP (MIP) drop off?

FHA MIP rules are set by HUD and changed materially on June 3, 2013. The two items to understand are upfront MIP (UFMIP) and annual MIP:

• Upfront MIP (UFMIP): A one-time charge (commonly 1.75% of loan amount) paid at closing or rolled into the loan. This is not canceled; it’s either paid or financed once.

• Annual MIP: Ongoing insurance paid monthly (calculated into the mortgage payment). Whether it ever stops depends on the loan’s origination date and original LTV:

• Loans originated on or after June 3, 2013: If the original LTV was greater than 90% (i.e., down payment less than 10%), annual MIP generally remains for the life of the loan.

• If the original LTV was 90% or less (down payment of 10%+), annual MIP is typically required for 11 years.

That means many FHA borrowers who put small down payments will carry annual MIP for the full mortgage term unless they refinance into a conventional loan once they have sufficient equity.

Practical option: If you obtain 20%+ equity later (through payments or appreciation), consider refinancing to a conventional loan to eliminate MIP — provided the refinance cost and current market rate make sense.

For HUD source details on MIP rates and rules, see: https://www.hud.gov/program_offices/housing/comp/mip

Common misunderstandings and pitfalls

• “MIP works like PMI” — Not exactly. PMI has statutory cancellation triggers; MIP often does not.
• Expecting automatic removal based on current market value — For PMI, a lender may accept an appraisal, but the automatic termination at 78% uses the original value and amortization schedule.
• Relying on homeowner equity statements alone — Servicers use the recorded original purchase price and the loan’s amortization when applying HPA rules; actual market equity may help if you request early cancellation but usually requires a formal appraisal.
• Overlooking servicer procedures — Each servicer has a process for PMI cancellation requests; they may require a certain number of on-time payments, no subordinate liens, or evidence the property is in acceptable condition.

Actionable steps to stop paying mortgage insurance (practical checklist)

1. Know your original purchase price and current principal balance. Ask your servicer for a payoff or principal-balance schedule.
2. Track your loan-to-value (LTV). LTV = current principal balance ÷ original purchase price (or current appraised value if you plan to submit one).
3. Request PMI cancellation in writing when LTV reaches 80% and you meet servicer conditions. Keep records of your request and any responses.
4. Consider ordering an appraisal if your home’s market value has risen — be ready to pay for the appraisal (servicer may accept it).
5. Make extra principal payments or a one-time lump-sum to reach 80% LTV sooner, if financially sensible.
6. For FHA borrowers, evaluate a rate-and-term refinance into a conventional loan once you have 20%+ equity or when refinance savings outweigh closing costs. See FinHelp’s refinancing guide for more on timing and tradeoffs: https://finhelp.io/glossary/mortgage-refinancing-when-to-refinance-and-cost-considerations/

Author’s note: In practice, I advise clients to simulate the refinance math before pursuing it. Even if you have equity, a refinance only eliminates MIP if the new conventional loan doesn’t require mortgage insurance — typically meaning at least 20% equity or qualifying for lender programs without MI.

Real-world example (illustrative)

Client: Bought a $300,000 house with 5% down (loan $285,000) at 4.25% fixed, 30-year term.

• To reach 80% LTV: Principal must fall to $240,000.
• Without extra payments, that will take several years. The exact month depends on your rate and amortization. You can request an amortization schedule from your servicer.
• If the property appreciates to $360,000, your LTV based on current value would be $285,000 / $360,000 = 79%, which could allow you to request PMI removal (servicer may require an appraisal).

This aligns with cases I’ve handled where targeted extra payments plus a rising local market shaved years off PMI payments and saved homeowners several thousand dollars over the life of the loan.

When removal isn’t worth it (cost-benefit cases)

• Paying for an appraisal to remove PMI may not make sense if the cost approaches several months of PMI.
• Refinancing to remove MIP or PMI only pays off if the new interest rate and closing costs produce net savings over a reasonable period (usually 2–5 years).

Run the numbers or consult a mortgage professional before paying fees or refinancing solely to drop mortgage insurance.

Final takeaways

• PMI and MIP both protect the lender, but PMI has specific federal cancellation rules (80% request, 78% automatic) while MIP rules depend on HUD policy and the loan’s origination details.
• Keep good records, check your servicer’s policies, and use appraisals, extra payments, or refinancing strategically to eliminate insurance when it’s financially advantageous.

Disclaimer: This is educational content and not individualized legal, tax or lending advice. Check your loan documents, contact your mortgage servicer, or consult a licensed mortgage professional for guidance tailored to your situation. For official rules see the Consumer Financial Protection Bureau (CFPB) and HUD: https://www.consumerfinance.gov and https://www.hud.gov/program_offices/housing/comp/mip

Further reading on FinHelp:

• Strategies to Remove Private Mortgage Insurance (PMI) Early: https://finhelp.io/glossary/strategies-to-remove-private-mortgage-insurance-pmi-early/
• Private Mortgage Insurance (PMI): https://finhelp.io/glossary/private-mortgage-insurance-pmi/
• Lender-Paid Mortgage Insurance (LPMI): https://finhelp.io/glossary/lender-paid-mortgage-insurance-lpmi/