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    Calculates locally in your browser · FHA mortgage insurance
    Mortgage / FHA

    FHA loan and its mortgage insurance

    An FHA loan is not expensive because of its rate. It is expensive because of the mortgage insurance: 1.75% upfront, financed into the loan, and an annual premium that is charged for the entire term whenever the down payment is under 10%. That premium can never be cancelled — the only way out is to refinance.

    LTV96.5%Down payment3.5%Loan limitWithin
    Total monthly
    $3,179
    principal, interest, MIP, taxes, insurance
    Annual MIP
    $180
    0.55% a year, for the life of the loan
    Upfront premium
    $6,755
    1.75% of the base loan, financed
    Cost against conventional
    $42,058
    extra insurance over the life of the loan
    The payment, built up
    MIP is charged on the loan including the financed upfront premium, which compounds the cost slightly.
    $3,179/mo
    The payment, built up
    ComponentMonthlyBasis
    Base loan$386,0003.5% down on $400,000
    Upfront MIP$6,755financed into the loan
    Total loan$392,75596.5% LTV on the base loan
    Principal and interest$2,48230 years at 6.50%
    Annual MIP$1800.55% of the total loan
    Property tax$4001.20% of value
    Homeowners insurance$1170.35% of value
    HOA$0monthly dues
    Total$3,179what the lender counts
    MIP over the life$64,805360 months
    Conventional PMI$22,747falls away after 139 months

    Above 90% LTV the annual premium is charged for the entire term and cannot be cancelled by appreciation or by paying down the balance — the only way out is to refinance. That is the single largest difference from a conventional loan with private mortgage insurance.

    Inspect the model
    Choose a quick result view, a scaled comparison, or the complete diagnostic set.
    Monthly payment against down payment
    At 10% down the premium drops a tier and becomes cancellable after eleven years.
    Monthly payment against down payment0.000750.281500.562250.843001.133751.413.5%3.5%5%5%10%10%15%15%20%20%Total monthly
    Insurance cost against down payment
    The MIP rate falls in steps, not smoothly — the tiers are in the handbook.
    Insurance cost against down payment0.00040.3280.65120.97161.29201.613.5%3.5%5%5%10%10%15%15%20%20%Monthly MIP
    Canonical equations
    The exact relationships implemented by this engine.

    price − down payment · The FHA insures this amount.

    1.75% × base loan · Usually financed.

    rate(LTV, size) × total loan / 12 · Charged monthly.

    LTV > 90% → life of loan · Otherwise eleven years.

    finance methodology

    A clear path from inputs to results.

    An FHA loan is not expensive because of its rate. It is expensive because of the mortgage insurance: 1.75% upfront, financed into the loan, and an annual premium charged for the entire term whenever the down payment is under 10%. That premium can never be cancelled — the only way out is to refinance.

    Step-by-step methodWorked exampleAssumptions explained

    How to use

    1. Enter the purchase price and down payment.
    2. Set the rate, term, property tax and insurance.
    3. Add HOA dues and a conventional PMI rate for comparison.
    4. Read the monthly payment and the lifetime insurance cost both ways.

    The formula

    MIPannual=rate(LTV,loan)×(B+0.0175B)MIP_{annual} = \text{rate}(LTV, \text{loan}) \times (B + 0.0175B)

    Reference: HUD Handbook 4000.1 II.A.4.d for the premium schedule; the 2025 FHA floor is $524,225 for a one-unit property.

    Worked example

    $400,000 purchase with 3.5% down

    Inputs
    • Price $400,000, down payment $14,000.
    • 6.5% for 30 years, 1.2% property tax, 0.35% insurance.
    • Conventional PMI at 0.5% for comparison.
    Calculation path
    1. 1

      The base loan is $386,000 and the upfront premium is 1.75% of it, or $6,755, financed into a $392,755 loan.

    2. 2

      LTV is 96.5%, so the annual premium is 0.55% of the total loan: $180.01 a month.

    3. 3

      Principal and interest is $2,482.70, tax $400 and insurance $116.67.

    4. 4

      The total monthly payment is $3,179.38.

    5. 5

      Because LTV is above 90%, the premium runs for all 360 months: $64,804 over the life.

    6. 6

      A conventional loan at the same rate would drop PMI once the balance reached 80% of value, costing about $16,000 — so FHA insurance costs roughly $48,000 more.

    Result

    $3,179 a month · $64,804 of MIP · about $48,000 more than conventional.

    Interpreting the result

    The down-payment decision matters more on an FHA loan than on a conventional one. At 10% down the premium drops a tier and stops after eleven years; at 3.5% it is permanent. The difference between those two outcomes is larger than the difference between most rate quotes.

    Assumptions & limitations

    • The upfront premium is financed rather than paid in cash.
    • The annual premium follows the HUD table by LTV and loan size.
    • Property tax and insurance are estimated as a share of value.
    • The conventional comparison assumes PMI cancels at 80% LTV.

    Frequently asked questions

    Can the MIP ever be removed?

    Only by refinancing out of the FHA loan, or if the original LTV was 90% or less, in which case it stops after eleven years. Appreciation and extra payments do not remove it.

    What is the 1.75% upfront premium for?

    It funds the insurance fund and is charged once at closing. Financing it raises the loan balance and therefore the annual premium slightly, which compounds.

    Can I refinance to conventional later?

    Yes, once you have 20% equity, which is the standard exit from permanent MIP and is often worth doing after a few years of appreciation.

    Is FHA always worse than conventional?

    No — FHA allows lower credit scores and higher debt-to-income ratios, and its rate is often lower. For a borrower who cannot qualify conventionally, it is the only option.

    Does the loan limit matter?

    Yes — above the local limit the loan is not FHA-insurable. The 2025 floor is $524,225, with a ceiling of $1,209,750 in high-cost areas.

    Methodology last reviewed 2026-10-22. Results are informational and not financial or engineering advice — see our disclaimer.