Since 2016 began, we have received a lot of questions about canceling mortgage insurance on FHA loans. People want to know: How do I cancel the annual MIP attached to my FHA loan? How long before I can remove this extra insurance premium? Is it even possible? Here’s what you should know.
Current policy for 2016: Most borrowers who use FHA loans in 2016 will have to pay the annual mortgage insurance premium (MIP) for the life of the loan, or up to 30 years. This is the current policy for borrowers who put down less than 10%. For borrowers who choose the low 3.5% down payment option, the only way to cancel the mortgage insurance premium is to pay off the loan or refinance.
Old policy: If your loan was created prior to June 3, 2013, you should be “grandfathered” under the older policy. This means your annual MIP should automatically cancel when you reach a loan-to-value ratio (LTV) of 78%. Additionally, there’s a 5-year payment requirement for 30-year loans. See details and table below.
That’s the FHA MIP cancellation policy in a nutshell. Here it is in more detail…
How to Cancel an FHA Mortgage Insurance Premium (MIP)
In 2013, the Department of Housing and Urban Development (HUD) issued a press release that outlined the steps the FHA would take to increase its capital reserves. Among other things, HUD announced they would charge annual mortgage insurance for the life of the loan, in most cases.
Here iss an excerpt from that press release:
“FHA will also require most borrowers to continue paying annual premiums for the life of their mortgage loan. This will permit FHA to retain significant revenue that is currently being forfeited prematurely.”
And here is a direct quote from the policy letter sent to lenders:
“For any mortgage involving an original principal obligation (excluding the financed upfront MIP) with a loan-to-value (LTV) ratio greater than 90%, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.”
So, for borrowers who use the customary 3.5% down payment option in 2016, the only way to cancel the annual MIP is to either pay off the loan or refinance. Otherwise, the mortgage insurance premium will stick with the loan for its full term, or at least up to 30 years.
Table Showing Old and “New” Cancellation Policy
The table below was issued in 2013, with the policy letter that announced the new MIP cancellation policy. The “Previous” column shows the annual MIP cancellation standards prior to June 3, 2013. The “New” column shows the revised policy, which is still in effect in 2016:
Prior to this policy change (which occurred in 2013), HUD and FHA would automatically cancel the annual MIP when the LTV reached 78%. You can see this in the table above. But that was the old policy. The revised policy calls for “MIP for life” — at least for borrowers with down payments less than 10%. I’m explaining this policy change so you won’t be confused. There are many outdated articles online that now contain erroneous information.
So, to clarify:
Before June 3, 2013 — If you have a 30-year FHA loan that was originated prior to June 3, 2013, your annual MIP should automatically cancel at 78% LTV, provided you’ve been paying mortgage insurance for at least 5 years. For a 15-year loan originated before that date, the 78% LTV “trigger” applies, but there is no 5-year requirement for payment.
After June 3, 2013 — If you take out an FHA loan in 2016, with a down payment below 10%, you will not be able to cancel your annual mortgage insurance premium until the end of the loan’s term or the first 30 years of the term, whichever comes first. You can also cancel the annual MIP by paying off the loan, which is usually what happens in a refinancing scenario.
Grated, all of this could change in the future. HUD makes changes to FHA policy from time to time, as they did in 2013 when they revised the MIP cancellation policy. But right now, in 2016, most borrowers who use FHA loans will not be able to cancel their annual mortgage insurance premiums. MIP cancellation is simply not permitted in most cases.
Where to Learn More
Do you still have questions about canceling mortgage insurance on an FHA loan? If so, you can refer to HUD Mortgagee Letter 2013-04. This is the letter that introduced the MIP cancellation policy change mentioned earlier, which remains in effect today, in 2016. You can find this letter on the HUD website by doing a Google search for “HUD Mortgagee Letter 2013-04.”
Important disclaimers: We have made every effort to ensure the accuracy of the information presented above. With that being said, this is our interpretation of HUD’s rules and guidelines, so it should not be viewed as an official policy statement. For the current and most accurate information regarding MIP cancellation, please refer to the HUD.gov website. You can also contact the FHA Resource Center directly by calling 800-CALL-FHA (225-5342), or by sending an email to firstname.lastname@example.org.