Conventional PMI vs FHA MIP

These two are often confused because they both add a monthly charge to your mortgage when your down payment is small. But they are different products with different rules, and the difference matters when you want to get rid of them.

Conventional PMI is private mortgage insurance. It is provided by a private insurer and required by the lender when your down payment is under 20 percent. The Homeowners Protection Act governs when it can be cancelled. On most conventional loans, PMI ends when your loan balance reaches 80 percent of the original value if you request it, or 78 percent automatically.

FHA MIP is a mortgage insurance premium. It is required by the Federal Housing Administration on all FHA loans. The rules are different, and in most cases they are worse for the borrower.

For FHA loans with a case number assigned on or after June 3, 2013, the annual MIP lasts for the life of the loan if your down payment was less than 10 percent. There is no cancellation. The only way to remove it is to refinance into a conventional loan.

If your down payment was 10 percent or more, the annual MIP ends after 11 years. Still longer than conventional PMI, but at least it ends.

For FHA loans with a case number before June 3, 2013, the annual MIP ends when your loan balance reaches 78 percent of the original value and you have paid for at least five years. That is closer to the conventional rule.

VA loans generally do not have monthly mortgage insurance. There is a one time funding fee that is paid at closing or added to the loan. No monthly charge.

USDA loans have an annual fee similar to FHA MIP. It is not called PMI, and the cancellation rules are different.

The point is that the phrase PMI does not cover all of these. If you have an FHA loan, the Homeowners Protection Act does not apply to your mortgage insurance. The tool will tell you which rule set applies before you pay anything.

See which rules apply to your loan.