A homeowner who took out a $350,000 FHA loan in 2020 with 3.5 percent down is paying roughly $160 a month in mortgage insurance right now. If nothing changes, they will keep paying it for the remaining 24 years of the loan, adding up to approximately $46,000 in premiums calculated on a balance that declines each month under standard amortization. The insurance does not cancel when equity hits 20 percent. It does not cancel at 30 percent, or 50 percent. Under current HUD rules, it never cancels.
That is the reality for every FHA borrower whose case number was assigned on or after June 3, 2013. The annual mortgage insurance premium, or MIP, runs for the full 30-year term regardless of how much equity accumulates. The only proven exit: refinance into a conventional mortgage once you reach 20 percent equity, and the insurance obligation disappears permanently.
As of mid-2026, with home values still elevated across much of the country after years of rapid appreciation, a growing number of FHA borrowers likely have enough equity to make that switch. Yet many remain in loans where they are paying for insurance they may no longer need.
Why FHA mortgage insurance lasts the full loan term
HUD established the life-of-loan MIP structure through Mortgagee Letter 2013-04, which applies to any FHA case number assigned on or after June 3, 2013. For borrowers who put down less than 10 percent, which covers the vast majority of FHA buyers, MIP runs for the full 30-year term with no cancellation trigger tied to equity. Borrowers who put down 10 percent or more get a slightly better deal: their MIP expires after 11 years. But even for that group, there is no provision linking cancellation to a specific equity level.
Borrowers with FHA case numbers assigned before that June 2013 cutoff may still qualify for MIP cancellation once their loan balance drops to 78 percent of the original value, under the earlier framework established by Mortgagee Letter 2000-46. If you are unsure which rules apply to your loan, the case-number assignment date on your original closing documents is the determining factor.
HUD has adjusted MIP rates over the years without touching the duration rule. The most recent significant cut came in March 2023, when the annual premium dropped from 0.85 percent to 0.55 percent for most borrowers. On a $350,000 loan, that works out to about $1,925 per year, or roughly $160 per month. The lower rate helped reduce the monthly sting, but it did nothing to shorten the timeline. A smaller premium paid for 30 years still adds up to a substantial sum, particularly when the borrower has long since crossed the equity threshold that would eliminate insurance on a conventional loan.
How conventional PMI cancellation works
Conventional loans operate under entirely different rules, thanks to the Homeowners Protection Act of 1998, codified at 12 U.S.C. § 4902. The law gives borrowers two paths to eliminate private mortgage insurance:
- Borrower-requested cancellation at 80 percent LTV. Once your loan balance drops to 80 percent of the home’s original value, you can submit a written request to your servicer. You will need a current payment history and no subordinate liens on the property.
- Automatic termination at 78 percent LTV. Your servicer is legally required to cancel PMI when the balance reaches 78 percent of the original value, with no action needed from you.
The Federal Reserve’s summary of the HPA notes that lenders can verify whether the property’s value has declined before granting a borrower-requested cancellation, but the automatic termination at 78 percent is mandatory regardless of property value changes.
These protections apply the moment an FHA borrower refinances into a conventional loan, which is precisely what makes that refinance so consequential. An FHA borrower who refinances into a conventional mortgage at 80 percent LTV or below can either request immediate PMI cancellation or avoid PMI entirely from day one.
The math behind refinancing out of FHA
Take that 2020 FHA borrower with the $350,000 loan. Suppose their home has appreciated enough to put them at 75 percent loan-to-value. A conventional refinance at that level would carry no PMI at all from the start. Even after factoring in closing costs, which according to industry data typically range from $4,000 to $8,000 on a refinance, the long-term savings from eliminating $160 a month in MIP can be recouped within two to three years.
One cost that is easy to overlook: FHA borrowers also paid an upfront MIP of 1.75 percent at origination, which was likely rolled into the loan balance. That upfront premium is a sunk cost for most borrowers at this point, though those who refinance within three years of their original FHA closing may be eligible for a partial refund on a declining scale. After three years, the refund drops to zero.
The calculation gets more nuanced when interest rates enter the picture. A borrower who locked in a 3 percent FHA rate in 2020 or 2021 faces a real trade-off if conventional rates in mid-2026 are significantly higher. As of late May 2026, 30-year conventional fixed rates remain well above the pandemic-era lows that many FHA borrowers locked in, so the rate gap is a real factor in the break-even math. The monthly savings from dropping MIP could be partially or fully offset by a higher interest rate on the new loan. The break-even analysis depends on the rate gap, the remaining loan balance, how long the borrower plans to stay in the home, and the closing costs of the new loan.
There is no universal answer. But the permanent nature of FHA MIP means the insurance cost compounds over time in a way that increasingly favors refinancing for borrowers who plan to stay in their homes for several more years, especially if the rate difference is modest.
What the data does and does not show
No publicly available HUD dataset shows how many post-2013 FHA loans currently carry active MIP while the borrower sits above 20 percent equity. That number would reveal the true scale of homeowners paying insurance they could potentially shed, but neither HUD’s data portal nor the agency’s MIP termination tool tracks borrower-level outcomes in a way that answers the question.
Researchers at organizations like the Urban Institute have examined FHA borrower profiles and refinance patterns, but isolating the specific population of equity-rich FHA borrowers still paying life-of-loan MIP remains difficult with available data. Lenders report anecdotally that the permanent MIP rule is a primary driver of FHA-to-conventional refinances once borrowers cross the equity threshold, but neither HUD nor the Consumer Financial Protection Bureau has published data separating that motive from other refinance triggers like rate reduction or cash-out needs.
There is also the question of how many borrowers remain in life-of-loan MIP even after they qualify for a beneficial refinance. Refinancing requires credit qualification, income documentation, an appraisal, and closing costs. For households that are payment-stable but cash-constrained, those hurdles can be enough to keep them in an FHA loan indefinitely. Without loan-level tracking that connects equity positions, credit profiles, and refinance outcomes, the number of borrowers effectively stuck paying unnecessary insurance remains unknown.
Practical steps for FHA borrowers weighing a refinance
Start with the basics: check your current loan balance against your home’s original appraised value. If that ratio is at or below 80 percent, a conventional refinance would let you request PMI removal immediately or avoid it entirely if the new loan starts at 80 percent LTV or lower. Many borrowers in markets that saw strong appreciation between 2020 and 2024 may already be past that threshold without realizing it.
If you believe your home’s current market value has risen substantially, a new appraisal during the refinance process could establish a lower LTV based on the updated value. This is separate from the HPA’s original-value calculations, which apply after the conventional loan is already in place. The appraisal at refinance determines your starting LTV on the new loan, and a strong appraisal can mean the difference between carrying PMI on the new mortgage and avoiding it altogether.
Borrowers with pre-June 2013 FHA case numbers should verify whether their loans qualify for the older cancellation rules before assuming a refinance is the only option. That means confirming the case-number assignment date, checking the current loan-to-value ratio, and asking the servicer in writing how and when FHA MIP can terminate under the legacy framework. The CFPB has previously flagged servicer errors and borrower confusion around PMI and MIP termination, so if a servicer’s response conflicts with HUD’s published guidance, borrowers can file complaints with the CFPB or contact a HUD-approved housing counselor.
For post-2013 FHA borrowers, the decision is more direct but still requires careful math. Run the numbers at least once a year: compare your current monthly MIP cost against the total cost of refinancing at prevailing conventional rates, including closing costs and any rate increase. Online refinance calculators can give you a rough break-even timeline, but a loan estimate from a lender will give you real numbers to work with.
A policy gap that keeps compounding for FHA borrowers
The rules draw a sharp line between FHA and conventional mortgages on insurance duration. FHA’s life-of-loan MIP is settled policy, unchanged since 2013 despite multiple premium-rate adjustments. The Homeowners Protection Act’s cancellation rights for conventional loans are equally settled law. The gap between the two creates a recurring cost for FHA borrowers that grows larger the longer they hold the loan and the more equity they build.
Periodic proposals in Congress to restore equity-based MIP cancellation for FHA loans have not advanced into law. Until HUD or Congress revisits the permanent MIP structure, the refinance path remains the only reliable exit for post-2013 FHA borrowers. That means staying informed about your equity position, monitoring conventional rates, and running the numbers periodically rather than assuming the status quo is the cheapest option. For many homeowners, the mortgage insurance they are paying today is a cost they no longer have to carry.
