How to remove mortgage insurance on an FHA loan
If you got your FHA loan after the year 2000, you may be able to cancel your FHA mortgage insurance.
If you got your loan before 2000, you'll continue to pay the premiums in most cases.
If your loan doesn't qualify for automatic cancellation, refinancing is the best way to eliminate MIP.
Loans insured by the Federal Housing Administration, or FHA loans, require borrowers to pay FHA mortgage insurance premiums (MIP). These are additional fees borrowers pay both up front and over the course of the mortgage term, regardless of the down payment amount. Eliminating these premiums can be challenging, but it's not impossible. Here's how to get rid of FHA mortgage insurance premiums.
No matter how large a down payment FHA borrowers make, they're required to pay FHA mortgage insurance premiums. FHA mortgage insurance includes both an upfront premium that's often paid at closing and an annual premium that may have to be paid for the life of the loan.
Borrowers who take out a conventional loan only have to pay for private mortgage insurance (PMI) if they put down less than 20 percent on their home. And once a borrower has achieved 20 percent equity in the home, they may cancel PMI.
The most important factor determining whether your FHA mortgage insurance premium can be canceled is the date your loan was originated.
Here's how eligibility breaks down by loan origination date:
If your origination date was between July 1991 and December 2000: You can't cancel your FHA mortgage insurance premiums. You'll need to keep paying them for the life of the loan.
If your origination date was between January 2001 and June 3, 2013: Your MIP is typically canceled when you reach a loan-to-value (LTV) ratio of 78 percent.
If your origination date was after June 3, 2013 and you made a down payment of at least 10 percent: Your MIP will be canceled after 11 years. For down payments of less than 10 percent, you'll pay MIP for the life of the loan.
Learn more: Estimate your monthly mortgage costs
There are two primary ways to eliminate mortgage insurance from an FHA loan:
If you meet the eligibility requirements to remove MIP from an FHA loan, your mortgage servicer should automatically cancel the premiums once you meet the criteria: a 78 percent LTV ratio or 11 years, depending on the loan. That's assuming you're in good standing with a record of on-time mortgage payments. If you qualify, and your premiums haven't been canceled, contact your servicer.
If you don't qualify for automatic removal — or you do, but want to eliminate the MIP sooner — consider refinancing your FHA loan to a conventional loan. With a conventional loan, you may cancel PMI once you've reached 20 percent equity in your home. Depending on how much you've paid on your loan, you may not need to pay PMI at all after refinancing to a conventional. Here are a few key considerations:
Interest rates: In general, it makes sense to refinance if you can get a refinance rate that's at least half to three-quarters of a percentage point less than your current rate.
Credit score: If you've improved your credit since you took out your original loan, you might qualify for a conventional loan with a better rate. Conventional loans typically require a minimum credit score of at least 620, though the higher your credit score, the more likely you are to qualify.
LTV ratio: A LTV ratio is a mortgage balance divided by the value of the property, and it influences your ability to refinance, as well as the need for PMI. So, in addition to how much you've paid on your FHA loan, take stock of the value of your home. Is it worth more today due to rising property values or a major renovation? If so, that'll lower your LTV ratio and improve your chances of qualifying and the terms you're offered.
Refinance closing costs: You'll need to pay closing costs to refinance, so do the math: Will the upfront cost of refinancing be worth the savings in the long run? Our mortgage refinance calculator can help you see how long it'd take to break even and then start profiting from the refi.
If your loan isn't eligible for MIP cancellation, it's worth contacting your servicer anyway, especially if you're having trouble making payments. Your servicer can help you explore a loan modification or other options.
Once mortgage insurance is removed, your monthly mortgage payment will decrease. MIPs range in cost from 0.15 percent to 0.75 percent of your loan principal, depending on how much you borrowed and the loan's term. Most borrowers pay 0.55 percent.
It adds up: Even if you pay only a hundred dollars or so a month in MIP, you could put that money toward emergency savings or another financial goal. Or you might put the extra toward the principal on your mortgage. This will help you pay off your loan faster and pay less interest overall.
At first glance, getting rid of your MIP seems like a no-brainer. However, if you're considering refinancing just to remove MIP, think it through.
You should only refinance to remove MIP if it'll save you money. If you're able to reduce your monthly payments and total interest charges by refinancing — possibly because interest rates have gone down or your credit has improved — then it's a smart move. If you can't get a lower rate by refinancing, you may want to stick with your original loan, even if it includes MIP.
Keep in mind that, if you refinance to a conventional loan and your LTV ratio is 80 percent or higher, you'll still have to pay for mortgage insurance — and PMI could be pricier than FHA MIP. Factor this into your calculations.
How does FHA mortgage insurance work?
FHA loans are insured by the Federal Home Administration — meaning, should the borrower default on the mortgage, the FHA reimburses the lender the outstanding balance. This FHA backing is what encourages lenders to provide financing to borrowers who have lower credit scores, can't manage a 20 percent down payment or who might not otherwise meet the lender's criteria. The FHA mortgage insurance premiums you're charged go towards paying for the FHA's coverage. So, although borrowers pay for it, FHA mortgage insurance actually protects the lenders, covering their risk for issuing the loan.
Can I reduce my FHA mortgage insurance premium?
Possibly. You might be able to reduce FHA MIP by refinancing to another FHA loan at a lower LTV ratio. The U.S. Department of Housing and Urban Development (HUD), which oversees FHA loans, lowered FHA mortgage insurance premiums in 2023.
Can I use a cash-out refinance to remove MIP?
It depends on the type of refi. FHA cash-out refis still incur MIP. Conventional ones and VA ones don't, provided you have enough equity built up in the home — generally, 20 percent of its overall value. But you'd have to ensure you'd be able to maintain that amount of equity, even with your cash takeaway.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
2 days ago
- Yahoo
4 Top No-Load Mutual Funds to Add to Your Portfolio
Major U.S. indexes, such as the Nasdaq Composite and the Dow Jones Industrial Average, have recovered from the start of 2025 but remain down by 0.1% and 0.5%, respectively, whereas the S&P 500 has gained 1%. Investors' sentiment remains clouded due to mixed domestic economic data, geopolitical tensions and ongoing concerns regarding Trump's foreign tariff policy with major trading partners. The personal consumption expenditure (PCE) index, the Federal Reserve's preferred inflation gauge, has climbed 0.1% sequentially in April and 2.1% on a year-over-year basis, after increasing 2.3% in March. Consumer spending, which is the largest component of the U.S. GDP, rose 0.2% in April after an unrevised 0.7% jump in March. Personal income increased 0.8% month over month in April. Disappointing jobs data raise concerns as businesses struggle due to tariff uncertainties. The economy added only 37,000 private employees in May, less than the downwardly revised 60,000 jobs in April and sharply lower than the consensus estimate of 110,000. The Institute for Supply Management's (ISM) Services Purchasing Managers Index (PMI) fell to 49.9 in May from April's reading of 51.6. Any reading below 50% indicates a contraction in service activities. Geopolitical tension has flared up due to Ukraine's fresh attack on Russia's military assets, which has caused panic and might affect the global supply chain. Amid the current market conditions, investors looking for higher returns can consider no-load mutual funds like Fidelity Select Semiconductors Portfolio FSELX, Invesco SteelPath MLP Select 40 MLPTX, DWS Science and Technology KTCSX and Fidelity Select Defense & Aerospace FSDAX as these have a low expense ratio, which can translate into higher returns. Other factors such as the funds' performance history, investment style and risk tolerance also act in their favor. Investors with disposable income who wish to diversify their portfolios can opt for no-load mutual funds. These passively managed funds don't have any commission fees or any other charges for buying and selling that are generally associated with actively managed funds. The sales charges — referred to as a 'front-end load,' which is charged upon purchasing shares, or 'back-end load,' which is charged upon the selling of shares — are absent in such funds because shares are distributed directly by the investment company, instead of any third-party involvement like a broker, advisor or other professionals. Even a few additional basis points saved in fees can boost the overall return by minimizing expenses. However, charges like the fund's expense ratio, 12b-1 fees for marketing, distribution, and service, redemption fees, exchange fees, and account fees are commonly charged even if there is no load. The load charges are generally within the range of 0-6%. To understand the math, let's assume an investor wants to invest $1000 in a mutual fund that has a 5% entry and exit load. Then, $950 ($1000-$50 [5% of $1000]) is left with the mutual fund house to invest. Now, let's assume the fund has given a 15% return over the year. So, the current value of the portfolio is $1092.5 ($950+ $142.5 [15% of $950]). Now, when an exit load of 5% is applied, the investor is left with $1037.87 ($1092.5-$54.63 [5% of $1092.5]). According to the above hypothesis, the returns earned by the investor with front and back load are 3.78%, whereas he could have enjoyed a much higher return without load. We have thus selected four no-load mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy), have positive three-year and five-year annualized returns, minimum initial investments within $5000, and carry a low expense ratio. Notably, mutual funds, in general, reduce transaction costs and diversify portfolios without an array of commission charges mostly associated with stock purchases (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money). Fidelity Select Semiconductors Portfolio invests most of its net assets in common stocks of domestic and foreign companies that areprincipally engaged in the design, manufacture, or sale of semiconductors and semiconductor equipment. FSELX chooses to invest in stocks based on fundamental analysis factors such as each issuer's financial condition and industry position, and market and economic conditions. Adam Benjamin has been the lead manager of FSELX since March 15, 2020. Most of the fund's exposure was to companies like NVIDIA (25.0%), Taiwan Semiconductor Manufacturing (8.3%) and Broadcom (8%) as of Feb. 28, 2025. FSELX's three-year and five-year annualized returns are nearly 24.4% and 28.3%, respectively. FSELX has an annual expense ratio of 0.62%. To see how this fund performed compared to its category and other 1, 2, and 3 Ranked Mutual Funds, please click here. Invesco SteelPath MLP Select 40 fund invests most of its assets, along with borrowings, if any, in the master limited partnership of companies, which are engaged in the transportation, storage, processing, refining, marketing, exploration, production, and mining of minerals and natural resources. MLPTX advisors also invest in derivatives and other instruments with similar economic characteristics in the same industry. Stuart Cartner has been the lead manager of MLPTX since April 1, 2010. Most of the fund's exposure was in companies such as MPLX (8.4%), Energy Transfer (7.8%), and Western Midstream Partners(7%) as of Feb. 28, 2025. MLPTX'sthree-year and five-year annualized returns are 20.10% and 28.4%, respectively. MLPTX has an annual expense ratio of 1.01%. DWS Science and Technology fund invests most of its assets, along with borrowings, if any, incommon stocks and initial public offerings of domestic science and technology companies, irrespective of their market capitalization. KTCSX advisors may also invest in foreign companies from the technology sector or other industries within the technology sector from developed and emerging market economies. Sebastian P. Werner has been the lead manager of KTCSX since Dec. 1, 2017. Most of the fund's exposure was in companies like Meta Platforms (9.6%), NVIDIA (8.1%) and Microsoft (7.7%) as of Jan. 31, 2025. KTCSX's three-year and five-year annualized returns are 18.8% and 17.3%, respectively. KTCSX has an annual expense ratio of 0.68%. Fidelity Select Defense & Aerospace fund invests most of its net assets in common stocks of domestic and foreign companies that areprincipally engaged in research, manufacture, or sale of products or services related to the defense or aerospace industries. FSDAX advisors choose to invest in stocks based on fundamental analysis factors such as financial condition and industry position, along with market and economic conditions. Clayton Pfannenstiel has been the lead manager of FSDAX since December 27, 2021. Most of the fund's holdings were in companies like General Electric (20.9%), The Boeing Company (11.9%) and Raytheon Technologies (10%) as of Feb. 28, 2025. FSDAX's three-year and five-year annualized returns were 17.8% and 16.3%, respectively. FSDAX has an annual expense ratio of 0.65%. Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Get Your Free (FSDAX): Fund Analysis Report Get Your Free (FSELX): Fund Analysis Report Get Your Free (MLPTX): Fund Analysis Report Get Your Free (KTCSX): Fund Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research
Yahoo
2 days ago
- Yahoo
Pound takes breather after hitting highest point against dollar since 2022
The pound pulled back slightly against the dollar on Friday in European trading hours, dipping almost 0.3% to trade around the $1.354 mark. Sterling's rally has sent it to its highest point against the greenback since 2022, but that's largely due to dollar weakness, analysts say. 'Domestic factors have also been supportive of sterling," said Matthew Ryan, head of market strategy at global financial services firm Ebury. Read more: FTSE 100 LIVE: Stocks mixed as traders weigh up Trump-Musk row and trade war developments 'This week's updated UK PMI figures provide reason for optimism, as the composite index was revised sharply higher to 50.3 in May (from the initial 49.4 estimate), i.e. back above the key level of 50 that separates growth from expansion. 'As we've been stressing for some time, Britain's economy should be well positioned to weather the tariff storm, while at the same time inflation is printing well above the Bank of England's 2% target." The dollar index ( headed 0.2% higher, meanwhile. The index tracks it against a basket of other currencies. The pound was almost flat against the euro following a Thursday interest rate cut by the European Central Bank (ECB). Read more: Average UK house price falls in May after stamp duty changes The bloc cut interest rates by a quarter of a percentage point for the eighth time in a year, as the bank attempts to support the euro economy after the turmoil caused by US president Donald Trump's trade war. The benchmark rate on the deposit facility has been reduced from 2.25% down to 2%, from a high of 4% toward the middle of 2023. Gold prices headed higher as economic uncertainty persists surrounding president Trump's trade tariffs. The yellow metal rose despite a strengthening dollar. Spot gold prices rose 0.4% to $3,364, while gold futures headed 0.3% higher to trade around $3,384. The weakness in the dollar in recent weeks has made it cheaper for buyers holding other currencies to snap up gold — a safe haven in uncertain times. "There is considerable geopolitical uncertainty with Russia-Ukraine, Iran, Syria and China driving people to buy gold... and although traders may not expect gold to rise as quickly, there is still plenty of upside," Daniel Pavilonis, senior market strategist at RJO Futures told Reuters on Thursday. Oil prices were on the back foot on Friday, pulling slightly lower amid concerns about oversupply and economic growth. Brent crude futures (BZ=F) fell 0.3% to $64.59 a barrel, while West Texas Intermediate futures (CL=F) declined 0.3% at $63.18 a barrel. Read more: The most popular stocks and funds investors bought in May Saudi Arabia has bee pushing for a major increase in oil production and has slashed prices for Asian buyers, signalling weaker demand, analysts said. The July price cut by Saudi Arabia, which is the world's biggest oil exporter, comes after the decision from the Organization of the Petroleum Exporting Countries and their allies — known as OPEC+ — to increase output next in to access your portfolio
Yahoo
3 days ago
- Yahoo
What is an interest-only mortgage?
Interest-only mortgages let you make payments on just your loan's interest for an introductory period — but afterward, payments increase. These loans are best for those planning to move or anticipating a big income increase within a decade. Since the Great Recession, interest-only mortgages have been hard to find due to their high risk. An interest-only mortgage allows borrowers to make payments only on the interest of the loan for a set amount of time — typically between seven and 10 years — at the start of a 30-year term. After this introductory period ends, the borrower makes payments on the principal and interest for the remainder of the loan term. During the introductory period, you'll pay only interest at a fixed or adjustable rate. Your payments will not include principal, so they'll likely be much lower than you'd find on a conventional loan — though the interest rate will be comparable. At the end of the initial period, you must repay the principal either in one balloon payment at a set date, or in larger monthly payments — that include both principal and interest — for the remainder of the term. And, because your principal payments are being amortized over only 20 years instead of 30, those payments will be higher than those of someone with a traditional 30-year loan. You can refinance after the interest-only period is over, but as in any refinance, you'll need to receive a home appraisal and pay closing costs and fees, which can total 2 to 6 percent of the loan amount. Even though you're only required to pay the interest during the introductory period, you can still pay down the principal if you choose. Say you obtain a 30-year interest-only loan for $350,000, with an initial rate of 6.5 percent and an interest-only term of seven years. During the interest-only period, you'd pay roughly $1,896 per month. After this initial phase, the payment would rise to about $2,610 per month — assuming your rate doesn't change. Many interest-only loans convert to an adjustable-rate loan, so if rates rise in the future, yours will, too. If your interest-only loan requires a balloon payment instead, you'd be on the hook for several hundred thousand dollars. With a 30-year fixed-rate mortgage for the same amount, you'd pay $2,212 per month, including principal and interest. While your introductory payments won't include principal, they will include property taxes, homeowners insurance and possibly private mortgage insurance (PMI). In the early 2000s, many homebuyers took on interest-only mortgages, only to find that they couldn't afford the larger payments after the introductory period. This was one of the risky practices that contributed to the housing crisis in 2007, leading to the Great Recession. In the end, many people lost their homes. Some lenders still offer interest-only mortgages today, but with much stricter eligibility requirements. They're now considered non-qualified mortgages, or non-QM loans, because they don't meet the backing criteria for Fannie Mae, Freddie Mac or the other government entities that insure and repurchase mortgages. Simply put: An interest-only mortgage is a riskier product. You'll need to be well-qualified to be approved for an interest-only mortgage. Banks generally look for borrowers who have: A credit score of 700 or more A debt-to-income (DTI) ratio of 43 percent or less A down payment of 20 percent or more Solid proof of future earning potential Ample assets Interest-only loans can be a prudent personal finance strategy under certain circumstances, but they're not a good idea for everyone. Interest-only payments are smaller than conventional mortgage payments. The initial monthly payments on interest-only loans tend to be significantly lower than payments on conventional loans, and the interest rate may be fixed during the first part of the loan. You may benefit from lower rates after the introductory period. If rates fall in the future, you'll benefit from relatively lower payments when your introductory period ends. You may be able to afford higher payments in the future. If you expect your income to increase, you may be able to buy a larger home now and put off the principal payments until they fit your budget. You may also be able to avoid principal payments entirely if you move during the introductory period. You won't build home equity. As long as you're paying only interest, you're not building equity in your home. And if your home's value depreciates, you could end up upside-down on your mortgage or risk negative amortization. You might have an unaffordable payment after the interest-only period. Your payment will increase after the introductory period, and depending on your income, it may not be manageable. You'll be at the mercy of market interest rates. If rates have risen since the loan originated, when the intro period ends, you may have a payment much higher than you expected. Learn more: Bankrate's affordability calculator The best candidates for an interest-only mortgage are borrowers who have full confidence they'll be able to cover the higher monthly payments when they arise. This kind of home loan might be right for you if you: Are in graduate school and want to keep repayments low for now — but anticipate having a high-paying job in the future Have a trust that will start releasing assets at a future date Flip houses and need to keep expenses down during the remodel Expect to move before the end of the introductory period If you like some of the features of an interest-only mortgage but don't think one is for you, you can explore other types of mortgages, including: Adjustable-rate mortgages: Like interest-only loans, these mortgages tend to have lower monthly payments during an introductory period. In this case, it's because of a low, initial rate, which can increase or decrease over time based on market movements. Because payments include principal, you'll build equity even in the early years of the loan. Federal Housing Administration (FHA) loans: These government-backed loans are geared toward borrowers who may not qualify for a conventional loan and can offer lower monthly payments without the risk of a future increase. Do banks still offer interest-only mortgages? Yes. Axos Bank, Bank of America, Central Pacific Bank, Chase Bank, KeyBank and New American Funding are examples of large U.S. lenders that offer interest-only mortgages. That said, they're far less prevalent than before the 2008 housing crisis. Can I change to an interest-only mortgage? It is possible to refinance a traditional mortgage to an interest-only loan, and borrowers might consider this option as a way to free up money to put toward short-term investments or an unexpected expense. Keep in mind that your lender may have more stringent requirements than for a traditional refinance because it is a higher-risk loan. How much can I borrow on interest only? The maximum amount you can borrow depends on the interest-only mortgage lender, your financial profile and the type of loan chosen. The loan can either be a conforming loan that has maximum borrowing limits — in most of the country, the 2025 conforming loan limit for one-unit properties is $806,500 — or a jumbo loan that can exceed conforming loan limits. Some lenders allow you to borrow up to 75 to 85 percent of the value of the property and in the seven-figure range. What if I can't pay off my interest-only mortgage? If you have an interest-only mortgage, make sure you have a plan in place to repay the principal you borrowed. Failing to do so could leave you with a substantial balance at the end of your mortgage term, potentially requiring you to sell your home. Your lender may attempt to repossess your home through foreclosure if you cannot repay your principal as agreed. Additional reporting by Kacie Goff Sign in to access your portfolio
