The short answer
PMI and FHA mortgage insurance both protect the lender, but they're priced and removed very differently. PMI on a conventional loan has no upfront charge and comes off once you reach enough equity. FHA mortgage insurance, called MIP, charges 1.75% upfront plus an annual premium, and for most borrowers who put down less than 10%, it lasts for the life of the loan unless you refinance. That's why FHA usually costs more over time, even when its monthly premium looks similar.
Two kinds of insurance for the same problem
When you buy a home with a small down payment, the lender wants protection. Conventional loans get it through PMI, private mortgage insurance. FHA loans, backed by the Federal Housing Administration, get it through MIP, the mortgage insurance premium.
Both are paid by you. Both protect the lender. Neither protects your family. The differences are in the price and, more importantly, in how long you pay. We explain PMI's mechanics in how PMI works.
How FHA mortgage insurance is priced
FHA MIP has two parts.
Upfront MIP: 1.75% of the base loan amount, usually added to the loan.
Annual MIP: for most 30-year FHA loans, 0.55% a year if you put down less than 5%, and 0.50% a year with 5% or more down. It's charged monthly.
How long it lasts: with less than 10% down, for the life of the loan. With 10% or more down, for 11 years.
These are HUD's rates for most loans as of this writing. Larger loans and shorter terms are priced differently, and HUD can change them. Your lender will quote your exact numbers.
Side by side on a $400,000 home
Here's how the two compare on a $400,000 home at 6.5%:
| FHA, 3.5% down | Conventional, 5% down, PMI at 0.5% | Conventional, 5% down, PMI at 1.0% | |
|---|---|---|---|
| Upfront charge | $6,755, added to loan | None | None |
| Monthly insurance, year one | About $179 | $158 | $317 |
| How long it lasts | Life of the loan | About 11 years, 3 months | About 11 years, 3 months |
| Total insurance paid | About $49,100 | About $21,400 | About $42,750 |
FHA's monthly charge shrinks a little each year, since it's based on your declining balance. But because it never ends, it keeps adding up. Over 30 years, it often costs more than PMI, even PMI on the expensive end.
Want to see which applies to your loan, and when yours ends? A free payoff projection can show you.
With 10% down, FHA looks different
Put 10% down on an FHA loan and MIP ends after 11 years:
| FHA, 10% down | |
|---|---|
| Upfront charge | $6,300, added to loan |
| Monthly insurance, year one | About $152 |
| How long it lasts | 11 years |
| Total insurance paid | About $24,900 |
That's much closer to conventional PMI. At this point, the better choice usually comes down to your credit score and the rate each lender offers.
When FHA is the better choice
FHA loans exist for a reason. They often make more sense when:
- Your credit score is lower. PMI pricing rises sharply for lower scores. FHA's premium doesn't change with your score, so it can be cheaper at first.
- Your down payment is very small. FHA allows 3.5% down with more flexible credit standards.
- You plan to refinance later. If you expect your credit and equity to improve, you can refinance into a conventional loan and drop MIP.
When PMI is the better choice
Conventional loans with PMI usually win when your credit is strong, you can put down at least 5%, and you plan to keep the loan for many years. The fact that PMI ends on its own is worth a lot over time.
Getting out of FHA mortgage insurance
If you already have an FHA loan with life-of-loan MIP, the usual way out is to refinance into a conventional loan once you have at least 20% equity. See how to remove FHA mortgage insurance. For conventional loans, see PMI explained and how much PMI costs.
Neither one protects your family
Both PMI and MIP pay the lender if you can't. If you want coverage that pays your mortgage when something happens to you, that's mortgage protection.
And once the mortgage insurance is behind you, the next question is how fast the rest of the loan can go. Ridgewell's Mortgage Accelerator Program is designed to help qualifying households pay off a home in as little as 5 to 7 years.
Payoff timelines are illustrations for qualifying households and are not guaranteed.
Where to start
Check your loan type on your mortgage statement or closing documents. If it's FHA, find out whether your MIP lasts 11 years or the life of the loan. If it's conventional, find your 80% date.
Then get a free payoff projection to see how soon you could be free of mortgage insurance.
Examples assume a $400,000 home and 30-year fixed loans at 6.5% for both FHA and conventional, principal and interest only, figures rounded. Actual FHA and conventional rates often differ. FHA MIP rates shown are HUD rates for most 30-year loans as of this writing and can change.
