What is mortgage insurance premium (MIP)?

How Is FHA MIP Calculated?

FHA MIP has two components that together represent a significant cost over the life of the loan:

• Upfront MIP (UFMIP): 1.75% of the base loan amount, due at closing. Almost all borrowers finance this into the loan rather than paying cash. On a $350,000 loan, the UFMIP is $6,125 added to the loan balance.
• Annual MIP: Paid monthly as part of the mortgage payment. The rate depends on loan term, LTV, and loan amount:
  • 30-year term, LTV ≤95%: 0.50% of loan balance
  • 30-year term, LTV >95%: 0.55% of loan balance
  • 15-year term, LTV ≤90%: 0.15% of loan balance
  • For base loan amounts above $726,200, add 0.20 percentage points to the above rates for terms over 15 years. For terms of 15 years or less above that amount, annual MIP is 0.15% at LTV ≤78%, 0.40% at LTV >78%–90%, and 0.65% at LTV >90%.

On a $350,000 FHA loan at 0.55% annual MIP, the monthly MIP payment is approximately $160 — added on top of principal, interest, taxes, and hazard insurance.

MIP vs. PMI: The Critical Difference

The distinction between FHA MIP and conventional PMI has major financial implications:

• Cancellation: Conventional PMI is cancelled automatically when LTV reaches 78% (Homeowners Protection Act). FHA MIP lasts the life of the loan for most borrowers (LTV >90% at origination).
• Cost comparison: PMI rates range from 0.22% to 2.25% depending on credit score and LTV. FHA MIP is a flat rate regardless of credit score — cheaper for low-credit borrowers but more expensive for good-credit borrowers.
• Escape path: Paying the FHA mortgage in full ends its insurance, including payoff with cash, sale proceeds, or replacement financing.
• Total cost: Over 30 years, FHA MIP on a $300,000 loan at 0.55% totals approximately $41,000 (declining as balance decreases) — compared to conventional PMI that drops off entirely once equity reaches 20-22%.

Why Does FHA MIP Matter for Financial Distress?

FHA MIP intersects with the American Distress Index in several ways:

• Payment burden: MIP adds $100-$200/month to housing costs, pushing total PITI payments higher and reducing the borrower's capacity to absorb other cost increases
• Trapped borrowers: The life-of-loan MIP requirement means FHA borrowers who can't refinance (due to credit damage, insufficient equity, or high rates) pay insurance premiums indefinitely — even after building significant equity
• Default concentration: FHA's 13.64% delinquency rate in August 2026 reflects the program's role serving lower-income, lower-credit, and first-time buyers who are more vulnerable to financial shocks
• Equity building delay: Financing the 1.75% UFMIP increases the loan balance, slowing equity accumulation and extending the period of negative equity

FHA delinquency is contextual evidence of stress in the lower end of the housing market — the same mortgage stress the ADI's Delinquency domain captures through mortgage delinquency — where MIP costs compound other financial pressures.