Mortgage Insurance Explained: PMI, FHA MIP and the VA Funding Fee

Here is what people get wrong, and it costs more than any other error in American home finance. They hear "mortgage insurance", learn that it comes off at 20% equity, and apply that to whichever loan they have. The 20% rule is real. It belongs to one of the three products below and to none of the others.

Private mortgage insurance on a conventional loan, FHA's mortgage insurance premium and the VA funding fee are three completely different things. PMI is insurance a private insurer writes for the lender, and federal statute gives you a right to have it removed. FHA MIP is insurance the Federal Housing Administration writes, with a duration fixed at origination that no amount of equity will shorten. The VA funding fee is not insurance at all — it is a one-off charge, and once paid there is nothing to cancel.

Conflating them produces one specific, expensive mistake: choosing FHA for the low deposit, assuming the insurance drops off at 20% equity as it would on a conventional loan, and discovering years later that above 90% original loan-to-value it runs for the life of the loan. Almost every number below is a programme rule, so there is nothing to negotiate — only something to choose correctly at the start.

Who this guide is for

• Anyone choosing between FHA and conventional at a low down payment
• FHA borrowers told their MIP will drop off at 20% equity
• Conventional borrowers whose lender has not mentioned PMI cancellation
• Homeowners overpaying in the hope of removing mortgage insurance
• Veterans working out what the funding fee is and whether they are exempt
• FHA borrowers wondering whether refinancing out is worth it

Quick answer

Conventional PMI is governed by the Homeowners Protection Act, 12 U.S.C. §§4901–4910, for single-family principal residences closed on or after 29 July 1999: you may request cancellation at 80% loan-to-value and it terminates automatically at 78%, both measured against the original value, with a final termination the month after the amortisation midpoint. Extra payments do not move the automatic date, which is set by the original schedule, but they are the route to the 80% request. FHA mortgage insurance is different in kind. Upfront MIP is 1.75% of the base loan amount, and annual MIP runs for a duration fixed at origination by the original loan-to-value: eleven years at or below 90%, the full mortgage term above 90%. It is not cancellable by request at any loan-to-value, so a standard 3.5%-down purchase at 96.5% pays it until refinance or payoff. The US$726,200 figure in the MIP table is a fixed threshold from Mortgagee Letter 2023-05, not the conforming limit. The VA funding fee is not insurance: it is a one-off 2.15% on a first-use purchase under 5% down, with exemptions, and a VA loan carries no monthly mortgage insurance at all.

Three products, three different mechanisms

Every row below is a programme rule that does not vary by lender.

Conventional PMI and the Homeowners Protection Act

PMI is required on a conventional loan above 80% loan-to-value at origination. That is a programme rule. What makes conventional attractive is not the requirement but the statutory right to end it.

The Homeowners Protection Act, 12 U.S.C. §§4901–4910, applies to single-family principal residences closed on or after 29 July 1999. Note the boundaries: it does not cover FHA loans, VA loans, or lender-paid mortgage insurance.

The two thresholds

You may request cancellation when your loan-to-value reaches 80%. The conditions are specific: the request must be in writing; you must be current on payments with a good history; there must be no junior liens; and you may be required to evidence that the value has not declined.

Separately, PMI terminates automatically at 78% loan-to-value. You do not have to ask and the lender must act. The date is the date your balance is scheduled to reach 78% under the original amortisation schedule.

Original value is the measure, not current value

Both thresholds are measured against the original value — the lower of the contract price or the appraised value at purchase. Not today's value. This is what disappoints people in rising markets: your house may have gone up 30% and your statutory cancellation point has not moved, because the Act's denominator is fixed at purchase.

Appreciation can still help, through a different door: a lender may permit cancellation on a new appraisal under its own policy. That is a lender overlay, not a right.

The detail almost nobody gets right

Extra payments do not accelerate automatic termination. That date is fixed by the original amortisation schedule. Pay an additional US$500 a month for four years and the scheduled 78% date is exactly where it was.

But extra payments are the route to the 80% request, which turns on your actual balance rather than the schedule. Pay down to 80% of original value and you have the right to ask.

So one action matters: make the written request. Overpay and stay silent and you wait for the scheduled date you were trying to beat. Lenders are not obliged to tell you that you have reached 80%, and most do not.

Final termination at the midpoint

There is a third exit. PMI terminates finally the month after the midpoint of the amortisation schedule, even if 78% has not been reached, provided you are current. On a 30-year loan that is after 180 scheduled payments — a backstop rather than a plan.

FHA MIP in full

FHA charges two premiums. Upfront MIP is 1.75% of the base loan amount. Then there is an annual premium, charged monthly, whose rate and duration are both set at origination.

These are the annual MIP rates for a term over 15 years, effective 20 March 2023 under Mortgagee Letter 2023-05. Programme rules, identical at every lender.

It is not cancellable, and that is the whole point

Read the Duration column again. FHA annual MIP is not cancellable by request. There is no 80% request, no 78% automatic termination, no appraisal you can order to get out of it. The Homeowners Protection Act does not apply to FHA loans.

What determines how long you pay is the original loan-to-value, fixed at origination: at or below 90%, eleven years; above 90%, the full mortgage term.

Now apply that to the loan most FHA borrowers actually take. FHA's maximum financing at a credit score of 580 or above is 96.5% loan-to-value, meaning 3.5% down — above 90%. A standard 3.5%-down FHA purchase therefore pays annual mortgage insurance for the life of the loan.

The only exits are refinancing out of FHA or paying the loan off. Building equity does not help. Paying ahead does not help. A new appraisal does not help. Reaching 20% equity, 30%, 50% — none of it shortens the duration by a month, because it was decided on the day you closed.

The 10% deposit cliff

There is one lever and it is at origination. Put 10% down and your original loan-to-value is 90%, landing in the eleven-year band rather than the mortgage-term band. The gap between 3.5% down and 10% down is not 6.5% of the price — it is eleven years of premiums against thirty. It is also an argument for conventional at 3% down over FHA at 3.5%, since conventional PMI cancels regardless.

The US$726,200 threshold is not the conforming limit

US$726,200 is a fixed figure written into Mortgagee Letter 2023-05. It is not the conforming loan limit, it is not indexed, and it does not move when the Federal Housing Finance Agency announces new limits each November.

It happens to have been the conforming baseline in an earlier year, which is why the confusion is durable. For 2026 the FHFA baseline one-unit conforming limit is US$832,750, up from US$806,500 in 2025, with a high-cost ceiling of US$1,249,125. Those figures have nothing to do with the MIP table.

So a base loan of US$800,000 sits above the MIP threshold — 0.75% rather than 0.55% at the top loan-to-value band — while still being comfortably inside the 2026 conforming limit. If someone tells you the MIP threshold rose for 2026, they are wrong.

The VA funding fee is not insurance

A VA loan carries no monthly mortgage insurance at all. Nothing cancels because nothing recurs. What the VA charges instead is a one-off funding fee, and calling it insurance sends people looking for a cancellation rule that does not exist.

These are the rates effective 7 April 2023. Programme rules.

Do not use 2.30% or 3.60%. Those were the Blue Water Navy table, applying only to loans closed between 1 January 2020 and 31 December 2021. They expired, and pages written in that window still carry them.

The funding fee can be financed into the loan, and it is the only fee that can be. Every other closing cost is paid on the day.

Who pays nothing

Exemption is a programme rule and no lender can override it. You are exempt if you are a veteran receiving VA compensation for a service-connected disability; eligible for that compensation but receiving retirement or active-duty pay instead; a surviving spouse receiving Dependency and Indemnity Compensation; a service member with a proposed or memorandum rating before closing from a pre-discharge claim; or an active-duty member with evidence of a Purple Heart on or before closing.

A worked example on the same purchase

Take a US$400,000 home and compare the three routes on the insurance element alone. Every figure is derived from the programme rates above.

Conventional, 3% down. Loan of US$388,000, so 97% loan-to-value. PMI is required at origination; rates are set by the private insurer, so there is no programme figure to quote. What is a programme rule is the end: cancellation on request at 80% of original value, a balance of US$320,000, and automatic termination at the scheduled 78% point, US$312,000.

FHA, 3.5% down. Base loan of US$386,000, so 96.5% loan-to-value. Upfront MIP at 1.75% is US$6,755. Annual MIP at 0.55% — under US$726,200, above 95% LTV — is roughly US$2,123 in the first year, falling slowly as the balance amortises. Duration: the mortgage term, with no cancellation point.

FHA, 10% down. Base loan of US$360,000, so 90% loan-to-value. Upfront MIP is US$6,300. Annual MIP drops to 0.50%, about US$1,800 in year one, and the duration falls to eleven years. Same house, different deposit, fundamentally different obligation.

VA, nothing down, first use. Loan of US$400,000. The funding fee at 2.15% is US$8,600, financeable. Then nothing — the highest single charge of the three and, for anyone staying more than a few years, comfortably the cheapest.

When refinancing out of FHA makes sense

The case is strongest when three things hold. Your original loan-to-value was above 90%, so you are in the mortgage-term band. Your current loan-to-value, on a fresh appraisal, is at or below 80%, so a conventional refinance needs no PMI at all. And the prevailing rate is close enough to your existing rate that the premium saving is not swallowed by interest.

That third condition makes it a calculation rather than an obvious move: refinancing out of a low fixed rate into a higher one to escape 0.55% of the balance can easily be a net loss. Run your actual annual MIP in dollars against the change in interest plus costs.

Above 80% a conventional refinance may still require PMI — but conventional PMI cancels, so you have converted a permanent charge into a temporary one.

The steps to take on your own loan

1. Identify which product you have. Conventional with PMI, FHA with MIP, or VA with a fee already paid. Your closing disclosure says.
2. If conventional, find your original value — the lower of contract price or purchase appraisal. That is the denominator for both thresholds, whatever the house is worth now.
3. Work out your 80% and 78% balances from that original value and compare them with your current balance.
4. If you are at or below 80%, make the written request. Current on payments, no junior liens, ready to evidence that value has not declined. If you are overpaying towards it, diarise the date.
5. If FHA, find your original loan-to-value, not your current one. At or below 90% means eleven years; above 90% means the mortgage term.
6. If you are in the mortgage-term band, price a refinance properly, and if VA, check the fee percentage on your closing disclosure and whether you were exempt.

Mistakes that cost money

Assuming FHA MIP cancels at 20% equity. It does not cancel by request at any equity level, and above 90% original loan-to-value it runs for the mortgage term. The most expensive mistake in the subject.

Choosing FHA at 3.5% down over conventional at 3% without pricing the insurance. The deposit gap is 0.5% of the price. The insurance gap can be decades of premiums.

Overpaying a conventional loan and never making the request. Extra payments do not move the automatic date. They only earn you the right to ask at 80%, in writing.

Measuring PMI against today's value. The Act uses original value. A lender may consider a new appraisal, but that is an overlay, not a right.

Treating the US$726,200 MIP threshold as the conforming limit. It is a fixed figure in Mortgagee Letter 2023-05. The 2026 conforming baseline is US$832,750.

Using the expired 2.30% or 3.60% VA funding fee rates. They applied only to loans closed between 1 January 2020 and 31 December 2021. The current first-use no-deposit rate is 2.15%.

Paying the VA funding fee when exempt, or looking for a cancellation rule on a VA loan. A service-connected disability rating, Dependency and Indemnity Compensation or a Purple Heart, among others, exempt you — and there is nothing recurring to cancel either way.

Edge cases and exclusions

Lender-paid mortgage insurance. Where the cost is priced into your rate instead of charged separately, the Act's cancellation rules do not apply. There is no premium line to remove, and the higher rate persists for the life of the loan. You have traded a cancellable charge for a permanent one.

Loans closed before 29 July 1999. The Act's provisions attach to loans closed on or after that date. An older loan falls outside them, and you are relying on lender policy.

Second homes and investment properties. The Act is framed around principal residences. Do not assume the statutory rights apply elsewhere.

FHA terms of 15 years or less. The table above is for terms over 15 years. Do not read these rates across to a shorter loan, and note that a home equity line or second mortgage blocks borrower-requested PMI cancellation outright.

Disclaimer

This guide explains the Homeowners Protection Act at 12 U.S.C. §§4901–4910, FHA mortgage insurance premiums in Mortgagee Letter 2023-05, FHA loan-to-value tiers from Mortgagee Letter 2010-29, and Department of Veterans Affairs funding fee rates effective 7 April 2023. Figures were checked on 12 October 2026. It is information, not mortgage or legal advice. PMI rates themselves are set by private insurers and are not published programme figures, so none is quoted here.

The short version

Three products, three mechanisms, one rule that applies to only one of them. Conventional PMI cancels: at 80% of original value on your written request, automatically at the scheduled 78% point, and finally the month after the amortisation midpoint. FHA mortgage insurance does not cancel on request at all, and above 90% original loan-to-value it runs for the full mortgage term, so a standard 3.5%-down purchase pays it until refinance or payoff. The VA funding fee is a one-off charge, not insurance, with nothing recurring to end.

Two numbers decide most of this and both are fixed on closing day. On a conventional loan it is the original value, because every statutory threshold hangs off it and no appreciation moves it. On an FHA loan it is the original loan-to-value, because 90% is the line between eleven years of premiums and the whole term. Neither changes afterwards, which is why this belongs in the choice of loan rather than a later conversation about escaping one.

If you are already in an FHA loan above 90% original loan-to-value, the only exits are refinancing out or paying off. If you are in a conventional loan and have been paying ahead, the written request at 80% is the one action that matters. And if you are eligible for a VA loan, check the fee percentage against the table and check whether you are exempt.