MIP and PMI both protect your lender if you stop paying, but they attach to different loans and follow different rules. MIP, or mortgage insurance premium, is what you pay on an FHA loan backed by the federal government. PMI, or private mortgage insurance, is what you pay on a conventional loan when your down payment is under 20 percent. The costs differ, the cancellation rights differ, and confusing the two can cost you thousands over the life of your mortgage.
How FHA MIP Works
Every FHA loan carries mortgage insurance administered by the Department of Housing and Urban Development, and it comes in two pieces. The upfront premium is 1.75 percent of your base loan amount, due at closing.1U.S. Department of Housing and Urban Development. What is the FHA Mortgage Insurance Premium Structure for Forward Mortgage Loans Most borrowers roll that cost into the loan balance, which means you pay interest on it for the life of the loan.
The annual premium is split into twelve monthly installments added to your payment. The rate depends on your term, loan amount, and equity. On loans longer than 15 years, the annual rate runs between 50 and 75 basis points. Shorter loans of 15 years or less start as low as 15 basis points for borrowers with at least 10 percent equity.1U.S. Department of Housing and Urban Development. What is the FHA Mortgage Insurance Premium Structure for Forward Mortgage Loans One quirk catches people off guard: FHA MIP rates do not vary by credit score. A borrower with a 620 FICO pays the same rate as one with a 780.
How PMI Works
On a conventional mortgage with less than 20 percent down, your lender requires private mortgage insurance from a private insurer. PMI appears as a line item on your monthly statement alongside principal, interest, taxes, and escrow.
PMI costs swing hard on credit score and down payment. Borrowers above 760 pay roughly 0.46 percent of the loan amount annually. Someone in the low 600s might pay 1.50 percent. On a $300,000 loan, that gap is about $260 a month. A bigger down payment also lowers the rate because the insurer has less exposure if you default. The Homeowners Protection Act, at 12 U.S.C. § 4901, sets the federal rules for when and how PMI can be removed.2Office of the Law Revision Counsel. 12 USC Chapter 49 – Homeowners Protection
The Core Differences
Five differences actually affect your wallet.
- Who provides it. MIP is a federal program through HUD. PMI comes from private insurers.
- When it’s required. FHA loans require MIP regardless of down payment. PMI only applies when a conventional loan has less than 20 percent down.
- How credit affects cost. FHA MIP rates are flat across credit scores. PMI rates are heavily credit-driven, with the lowest scores paying roughly three times what the highest scores pay.
- Upfront cost. FHA charges 1.75 percent upfront. PMI usually has no upfront charge, though some lenders offer single-premium options.
- Cancellation. PMI can be cancelled at 20 percent equity. FHA MIP often lasts the entire loan term.
Cancelling PMI on a Conventional Loan
Federal law gives you two paths. The first is borrower-requested cancellation: once your loan balance falls to 80 percent of the home’s original value, you can submit a written request to your servicer.3Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance The second is automatic termination: your servicer must cancel PMI on its own once the balance hits 78 percent of original value, as long as you’re current.4Consumer Financial Protection Bureau. When Can I Remove Private Mortgage Insurance (PMI) From My Loan
To qualify for borrower-requested cancellation, you have to meet all four requirements: submit the request in writing, show a good payment history, certify no junior liens on the property (like a second mortgage or HELOC), and provide evidence that your home’s value has not dropped below its original value.3Office of the Law Revision Counsel. 12 USC 4902 – Termination of Private Mortgage Insurance That last point trips up borrowers in soft markets. If your home has lost value, you may not be able to cancel even if your payments have brought the balance below 80 percent of what you paid.
“Good payment history” is defined more narrowly than it sounds. You cannot have had any payment 30 or more days late in the twelve months before your request, and no payment 60 or more days late in the twelve months starting 24 months before the cancellation date.2Office of the Law Revision Counsel. 12 USC Chapter 49 – Homeowners Protection One missed payment can force you to wait.
Using Rising Home Values to Cancel Early
You don’t have to wait for amortization to grind the balance down. If your home has gained value from the market or improvements, you can ask for cancellation sooner. Most lenders require the loan to be at least two years old before they’ll consider a value-based cancellation, and they’ll order a new appraisal at your expense. Appraisals for this purpose generally run $450 to $1,200 depending on location and property type. If the appraisal confirms you have at least 20 percent equity at current value, the lender should approve the cancellation.
If the Servicer Denies the Request
If your servicer denies a cancellation request, federal law requires written notice explaining the specific reasons within 30 days. If an appraisal was used in the decision, the servicer must share the results with you.5Federal Deposit Insurance Corporation. V-5 Homeowners Protection Act If you believe your cancellation rights are being violated, you can file a complaint with the Consumer Financial Protection Bureau, which generally requires companies to respond within 15 days.6Consumer Financial Protection Bureau. Submit a Complaint
Getting Rid of FHA MIP
Removing FHA mortgage insurance is far more restrictive than cancelling PMI, and this is where many borrowers get a nasty surprise. For FHA loans originated after June 2013:
- With a down payment of 10 percent or more, annual MIP drops off after 11 years.
- With a down payment under 10 percent, annual MIP stays for the life of the loan.
Most FHA borrowers put down the minimum 3.5 percent, so most FHA borrowers are stuck paying MIP until the loan is paid off. There is no equivalent of PMI’s 80-percent cancellation right. The realistic exit is to refinance into a conventional loan once you have enough equity to avoid PMI entirely, or at least to qualify for the lower PMI rates that come with a stronger credit score and real equity.
That refinance math matters more than people think. If you took an FHA loan because your credit was below 620, spending two or three years building score and equity can save tens of thousands in insurance costs by switching to a conventional loan with no PMI, or with cancellable PMI at a lower rate.
Lender-Paid Mortgage Insurance Is a Different Trap
Some lenders offer to pay your mortgage insurance for you in exchange for a higher interest rate. This is called lender-paid mortgage insurance, and it removes the separate PMI line from your statement so the payment looks lower at first glance. The catch is real: because the insurance cost is baked into the rate, you cannot cancel it the way you can with borrower-paid PMI. The higher rate stays until you refinance or pay off the loan.
It can make sense if you plan to sell or refinance within a few years. If you plan to stay long-term and you’re close to 20 percent equity, borrower-paid PMI that you can cancel is almost always the better deal.
Can You Deduct Mortgage Insurance on Your Taxes
For the 2026 tax year, qualified mortgage insurance premiums are deductible as mortgage interest if you itemize. Under 26 U.S.C. § 163(h)(3)(E), premiums you pay on insurance connected to a home purchase loan count as deductible interest, and this applies to both FHA MIP and conventional PMI.7Office of the Law Revision Counsel. 26 USC 163 – Interest
The deduction phases out at higher incomes. It drops by 10 percent for each $1,000 your adjusted gross income exceeds $100,000 ($50,000 if married filing separately), so it’s gone entirely at $110,000 AGI ($55,000 for separate filers).7Office of the Law Revision Counsel. 26 USC 163 – Interest The deduction had previously expired at the end of 2021, but legislation effective for tax years beginning after December 31, 2025, removed that expiration.8U.S. Congress. H.R.1 – 119th Congress – An Act to Provide for Reconciliation Your lender reports the premiums you paid in Box 5 of IRS Form 1098, which you should receive each January.9Internal Revenue Service. Instructions for Form 1098
If You’re Looking at VA or USDA Instead
Neither VA nor USDA loans use MIP or PMI, so the comparison above doesn’t carry over cleanly. VA loans require no monthly mortgage insurance at all; most borrowers pay a one-time funding fee at closing that varies with down payment and prior VA loan use, and veterans receiving VA disability compensation and certain surviving spouses are exempt.10U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs USDA Rural Development loans charge a 1 percent upfront guarantee fee plus a 0.35 percent annual fee on the remaining balance, and the annual fee stays for the life of the loan.11U.S. Department of Agriculture. USDA Single Family Housing Guaranteed Loan Program Overview USDA loans are limited to eligible rural and suburban areas and come with household income caps.