Mortgage insurance
With less than 20% down you pay for insurance that protects the lender, not you. What it costs matters less than a question nobody asks at closing: when does it stop?
Conventional — PMI
$247/mo
- Cancels automatically
- 11 years and 3 months
- Can ask to cancel
- 10 years and 4 months
- Total paid
- $30,740
Asking as soon as you reach 80% saves $2,260 over waiting for the automatic cut-off.
FHA — MIP
$174/mo
- Upfront premium
- $6,650
- Ends
- never
- Total paid
- $47,660
Charged for the life of the loan — only a refinance ends it.
Over the life of this loan FHA insurance costs $16,920 more than PMI — even though its monthly premium is lower. The difference is entirely that PMI stops and FHA’s does not.
Who it protects
Not you. Mortgage insurance pays the lender if you default. You pay the premium, the lender collects the benefit, and your own position is unchanged.
That is not a scandal — it is what makes a 3% deposit possible at all. Without it, low-deposit lending would simply cost more in rate, or not exist. But it does mean the premium is a cost to minimise, not a protection to value.
The only question that really matters
Both programmes charge similar money per month. They differ in when they stop, and that difference is worth more than any rate negotiation most borrowers will ever have.
PMI ends by law. Under the Homeowners Protection Act the lender must drop it automatically once your scheduled balance reaches 78% of the original value, and must consider a written request at 80%. Ask at 80% rather than waiting — the calculator above shows what the wait costs.
FHA’s premium usually does not end. On loans with a small deposit written since 2013 it runs for the life of the loan. With 10% down or more it stops after eleven years. Otherwise the only exit is refinancing into a conventional loan.
Making cancellation come sooner
The clock runs on the scheduled balance against the original value, so neither a rising market nor an appraisal moves it by itself.
What does move it:
- Paying extra principal. Every additional dollar brings the 78% date closer, and unlike most prepayment, this one has a defined payoff.
- Asking at 80%. It is your right to request; lenders do not volunteer.
- A new appraisal, if your lender’s own rules allow value-based cancellation after improvements or substantial appreciation. That is servicer policy, not the federal rule, so it varies.
When FHA is still the right answer
Everything above says FHA insurance is expensive. It does not say FHA is a bad choice.
FHA exists to lend to people conventional underwriting turns away — thinner credit files, smaller deposits, higher ratios. For many borrowers the honest comparison is not FHA against conventional; it is FHA against not buying. The premium is the price of the door being open.
The trap is staying in it out of inertia. Once your credit and equity would support a conventional loan, the premium becomes optional, and the refinance arithmetic usually favours leaving — even at a similar interest rate, because the saving comes from dropping the premium rather than the rate.
About these figures
FHA premiums are HUD’s published schedule for 30-year loans and are exact. PMI rates are not published: they depend on credit score, deposit and the insurer, and vary between roughly 0.3% and 1.1% a year. The default here follows LTV alone, so treat the PMI column as a market range rather than a quote — your own figure is on your Loan Estimate.