PMI vs. FHA MIP: Why Cancellation Rules Matter
When you buy a home with less than 20% down on a non-VA loan, you must pay mortgage insurance—but Conventional PMI and FHA MIP follow radically different rules:
1. Conventional PMI (Private Mortgage Insurance)
- Cost: Scales dynamically by credit score (from ~0.35%/yr at 760+ FICO to 1.25%+/yr at 640 FICO).
- Automatic Cancellation: Under the Homeowners Protection Act, you can request PMI removal once your loan reaches 80% Loan-to-Value (LTV), and your servicer must terminate it automatically at 78% LTV.
2. FHA MIP (Mortgage Insurance Premium)
- Cost: Includes an upfront 1.75% UFMIP plus a flat 0.55% annual MIP (on most 30-year loans with 3.5% down), regardless of credit score.
- The Life-of-Loan Rule: If you put less than 10% down on an FHA loan (such as the standard 3.5% minimum), FHA MIP stays on the loan for the entire 30-year life of the mortgage unless you refinance into a conventional loan.