FHA mortgage-insurance cost made up of an upfront premium and an ongoing annual premium normally collected monthly.
Mortgage insurance premium, or MIP, is the mortgage-insurance cost charged on an FHA-insured loan. Most FHA forward mortgages use both an upfront premium and an ongoing annual premium that is normally collected in monthly installments.
MIP changes the economics of an FHA loan in two places. The upfront component affects cash to close or opening loan balance, while the annual component increases the monthly payment. A borrower who compares only the note rate or base principal-and-interest payment will understate the cost.
MIP also matters because it is often called PMI in casual conversation. That shorthand is misleading: FHA MIP and conventional PMI have different insurers, premium structures, and duration rules.
Borrowers first encounter MIP while comparing FHA and conventional financing. The Loan Estimate shows the recurring amount in projected payments and identifies the upfront program charge among closing costs. If the upfront premium is financed, the loan amount reflects that choice.
At closing, the Closing Disclosure confirms the final upfront and monthly effects. After closing, the servicer collects the ongoing amount with the monthly payment for the required assessment period.
| Component | Timing | Borrower impact |
|---|---|---|
| Upfront Mortgage Insurance Premium (UFMIP) | Charged at closing | Paid in cash or commonly financed into the mortgage |
| Annual Mortgage Insurance Premium | Assessed over time and normally collected monthly | Raises the recurring mortgage payment |
“Upfront” and “annual” describe different charges. Financing UFMIP does not eliminate annual MIP, and paying UFMIP in cash does not replace the ongoing premium.
An FHA borrower starts with a $300,000 base loan. The upfront MIP is financed, so the opening mortgage balance exceeds the base loan amount. The payment also includes a monthly amount derived from annual MIP.
The borrower should compare:
FHA annual-MIP duration depends on factors such as the FHA case-number assignment date, original LTV, mortgage term, and program. Under rules used for many newer FHA forward mortgages, annual MIP generally lasts 11 years when original LTV is 90% or less and for the mortgage term when original LTV is above 90%. Older FHA loans can follow different rules.
Borrowers should confirm the actual case terms with the servicer. Reaching 80% or 78% LTV does not automatically give an FHA borrower the conventional PMI rights described by the Homeowners Protection Act (HPA).
MIP differs from Private Mortgage Insurance (PMI) because MIP is part of the FHA program, while PMI is private insurance for certain conventional mortgages.
MIP differs from the VA Funding Fee because the VA funding fee is generally an upfront program fee and VA loans do not use the same recurring FHA MIP structure.
It also differs from Homeowners Insurance, which protects against covered property and liability losses rather than mortgage-default risk.