What Is Mortgage Insurance Premium? Navigating FHA MIP
What Is Mortgage Insurance Premium?
Depending on the type of loan you take out and the amount of money you put down, you might have to pay a certain type of mortgage insurance. Mortgage insurance is designed to protect the lender against borrowers that might pose more of a risk. This includes FHA borrowers, as well as borrowers for conventional loans who put down less than 20%.
While there are a couple of different types of mortgage insurance, FHA borrowers are required to pay MIP, or mortgage insurance premium. No matter how much you put down, if you get an FHA loan, you must pay 1.75% of the loan amount up front and between 0.45% and 1.05% of your loan amount every year in MIP.
As an example, if you take out a $500,000 home loan, you must pay $8750 in MIP upfront. Then, you have to pay between $2250 and $5250 every year. These annual amounts get divided among your monthly payments, so you don’t have to pay the lump sum all at once.
How Long Does Mortgage Insurance Premium Last?
If you get an FHA loan, your down payment amount determines how long you will have to pay the mortgage insurance premium for. If you put down 10% or more for your home purchase, you'll have to pay MIP for 11 years of your loan.
If you put down less than 10% on your home, you must pay MIP for the entire life of the loan - up to 30 years. Let’s look at an example to see how much you might have to pay in MIP over the life of a loan.
Let’s say your home’s purchase price is $500,000, and you put down 10% for your FHA loan. This puts your loan amount at $450,000. Your upfront MIP payment is $7875, and you have to pay between $2025 and $4725 every year for 11 years. Total, you’ll end up paying between $30,150 and $59,850 in MIP.
If you only put down 3.5% on your home - the FHA minimum - this means your down payment is $17,500 and your loan amount is $482,500. Your upfront MIP payment is $8444, and you have to pay between $2171 and $5066 every year for the entire loan term - usually, 30 years. This means you will end up paying between $73,574 and $160,424.
As you can see, while you might pay less up front for an FHA loan with a low down payment, you end up paying more over time because of MIP.
Free Home Value
Get To Know Us
