FHA Mortgage Insurance Never Drops Off at 3.5% Down. Here's the Refinance Math.

A borrower called us in August with a printed amortization schedule and a highlighted row. He had reached 78% of his original purchase price, four years into an FHA loan, and wanted to know where to send the letter to cancel his mortgage insurance.

There is no letter. There is no cancellation. He had read the conventional PMI rules, which are genuinely generous, and assumed they applied to his loan. They do not.

This is the single most consistent misunderstanding among FHA borrowers, and it is not their fault. Every article about dropping mortgage insurance is written about conventional loans. The rules are different enough that carrying one set over to the other costs real money.

First, the eligibility note that now frames every FHA post: under Mortgagee Letter 2025-09, effective for case numbers assigned on or after May 25, 2025, FHA is available only to lawful permanent residents and US citizens. Non-permanent residents — H-1B, L-1, O-1, TN, EAD — are no longer eligible; we wrote that change up in full in FHA Just Closed the Door on H-1B Borrowers. If you are reading this because you already hold an FHA loan closed before that change, the servicing rules below still apply to your loan. If you are shopping now, start at FHA Loans for Green Card Holders in 2026, and if you are unsure which category you fall into, Non-Citizen, Non-Resident Alien, Non-Permanent Resident sorts the terms out.

The rule, stated precisely

For FHA loans originated after June 3, 2013:

• Put 10% or more down, and annual MIP runs for 11 years.

• Put less than 10% down, and annual MIP runs for the life of the loan.

That is the whole rule. There is no LTV trigger, no request procedure, no automatic termination date, and no midpoint provision. Your loan-to-value at year eight is irrelevant. Your home's appreciation is irrelevant. An appraisal showing you at 60% LTV changes nothing.

Note the word "originated." The duration is fixed by the down payment you made at closing, not by where your balance sits later. Paying an extra $500 a month for three years builds equity, saves interest and shortens your term — it does not touch your MIP.

Why the conventional rules do not transfer

Conventional PMI is governed by the Homeowners Protection Act, which the CFPB summarizes in three triggers for single-family principal residences closed on or after July 29, 1999:

Trigger	Conventional PMI	FHA annual MIP at 3.5% down
Borrower request at 80% LTV of original value	Available, with written request, good payment history, current status, no junior liens, value not declined	Not available
Automatic termination at 78% LTV of original value	Required of the servicer on the scheduled date if current	Not available
Amortization midpoint (year 15 of a 30-year)	PMI must end regardless of balance	Not available
Only exits	—	Refinance into a conventional loan, or sell

The full mechanics of the conventional side are in PMI Is Not Forever: The 80%, 78% and Midpoint Rules. Read it, then read this table again, because the contrast is the whole point.

The math on a real file

Take Sanjay, a composite of files we see in Duluth and Johns Creek. Green card holder, closed an FHA loan on a $400,000 house at the 3.5% minimum.

• Down payment: $400,000 × 0.035 = $14,000

• Base loan: $386,000

• Upfront MIP at 1.75%: $386,000 × 0.0175 = $6,755

• Starting balance: $392,755

Annual MIP is charged as a percentage of the outstanding balance, billed monthly. Your specific factor depends on your loan amount, LTV and term, and it is printed on your Loan Estimate and your closing disclosure — go read yours rather than trusting a chart.

The arithmetic works the same whatever your factor is. On Sanjay's $392,755 balance, every 0.10% of annual MIP costs $392.76 a year, or $32.73 a month. Multiply by your own factor and you have your number.

Run it at 0.55% purely to show the method — this is illustrative arithmetic, not a quote of Sanjay's factor or yours:

• $392,755 × 0.0055 = $2,160.15 a year

• Divided by 12 = $180.01 a month

Over ten years, with the balance declining slowly as principal amortizes, that lands somewhere near $20,000 to $21,600 in cumulative MIP. Add the $6,755 he already financed upfront, and mortgage insurance is a five-figure line item on this loan before he reaches year eleven — with no expiry in sight.

The refinance break-even

The exit is a conventional refinance once his loan-to-value supports it without new PMI, or with PMI cheap enough to be worth trading. Say his balance has amortized to $380,000 and the house appraises high enough to put him under 80%.

Assume closing costs of $6,500. Three scenarios, and the variable that decides each:

Scenario one — the new rate is roughly a wash with his current rate. He eliminates $180.01 a month of MIP and changes little else.

$6,500 ÷ $180.01 = 36.1 months. Break-even at just over three years. If he is staying five or more years, this is straightforward.

Scenario two — the new rate is 0.50% higher than the rate he holds. Using the Freddie Mac survey average for the week of September 17, 2026 — 6.95% on the 30-year fixed — as an illustration only, and not as a rate available to anyone:

• $380,000 at 6.95% over 30 years: principal and interest of about $2,515 a month

• $380,000 at 7.45% over 30 years: about $2,644 a month

• Added interest cost: $129 a month

Net monthly savings: $180.01 − $129 = $51.01.

$6,500 ÷ $51.01 = 127 months. Ten and a half years. That refinance does not pay, and nobody should do it.

Scenario three — the new rate is lower than his. Then the MIP savings are a bonus on top of a refinance that already made sense, and the break-even collapses to well under two years.

The three variables, named plainly

1. The rate you can get versus the rate you hold. This dominates everything else. A borrower sitting on a 5.25% FHA note from 2021 should generally not refinance to escape MIP, because the rate increase swallows the savings several times over.

2. Your current loan-to-value. Under 80% of appraised value and conventional PMI disappears entirely. Between 80% and about 90%, you are trading FHA MIP for conventional PMI, which at least cancels — but the monthly savings shrink and the break-even stretches.

3. How long you will stay. If your break-even is 36 months and you expect a relocation in 24, it is not worth doing. Be honest about this one; most people overestimate how long they will hold a house.

Do not refinance out of FHA on the strength of the MIP savings alone without pricing the rate change. The MIP number is visible and annoying and easy to fixate on. The interest-rate difference is larger and quieter, and it is the one that decides whether the trade works.

If you put 10% or more down and you are inside the 11-year window, the calculation is different again — you have a defined end date, and refinancing early only makes sense if the rate also improves.

Frequently Asked Questions

Q: Does FHA mortgage insurance go away at 78% LTV?
A: No. The 78% automatic termination rule is a conventional PMI rule under the Homeowners Protection Act. On an FHA loan originated after June 3, 2013 with less than 10% down, annual MIP runs for the life of the loan regardless of your balance, your equity or your appraised value. Paying the loan down does not remove it.

Q: How do I get rid of FHA MIP?
A: Two ways: refinance into a conventional loan, or sell the property. If you put 10% or more down, annual MIP also ends on its own after 11 years. There is no cancellation request procedure with your FHA servicer the way there is with conventional PMI.

Q: Is refinancing from FHA to conventional worth it?
A: It depends on three things: the rate you can get versus the rate you hold, your loan-to-value at the time, and how long you will stay. If the rate is a wash, $180 a month of MIP savings against $6,500 in closing costs breaks even in about 36 months. If the new rate is half a point higher, the same refinance can take over ten years to break even.

Q: What is FHA upfront MIP and can I get it refunded?
A: Upfront MIP is 1.75% of the loan amount, normally financed into the balance at closing. Partial refunds exist only in narrow circumstances involving an FHA-to-FHA refinance within a limited window after closing. Do not plan around a refund; treat the 1.75% as spent.

Q: Does making extra principal payments shorten how long I pay FHA MIP?
A: No. The duration is set by your original down payment, not by your balance. Extra principal saves interest and shortens your loan term, both of which are worth doing, but your annual MIP obligation is unchanged. Only a refinance or a sale ends it at less than 10% down.

Ready to get started? Masala Loans by Matador Lending specializes in exactly this. Call 713-366-4668 or get your no-haggle rate at masalaloans.com.

Apna Ghar. Your Dream Home. Your Best Rate. No Haggling.