FHA Mortgage Insurance vs. Conventional PMI: The Difference Is How It Ends
Both protect the lender when the down payment is small. FHA adds an upfront premium and often lasts longer; conventional PMI can be canceled as equity builds. Here are the questions that matter.
By Aida Yousif · 3 min read
Why this matters: Two loans with similar rates can cost very different amounts over time because of mortgage insurance. Ask how and when it ends, not just what it costs on day one.
Cover: two forms of mortgage insurance shown as umbrellas over two homes. Illustration created for mortgage.news; it does not depict a real person, property or document.
What both do
Mortgage insurance protects the lender, not the borrower, if the loan is not repaid. The CFPB explains that FHA loans carry FHA mortgage insurance premiums, while conventional loans with less than 20% down usually carry private mortgage insurance.
How FHA insurance works
FHA charges an upfront premium, generally 1.75% of the base loan amount, which is often financed into the loan, plus an annual premium paid monthly. Under HUD's current schedule in Mortgagee Letter 2023-05, annual premiums vary by loan amount, term and loan-to-value. For many purchase loans with less than 10% down, the annual premium lasts for the life of the loan. With 10% or more down, it generally ends after 11 years. Full rules are in HUD Handbook 4000.1.
How conventional PMI ends
For most conventional loans on a primary residence, the CFPB explains that you can ask to cancel PMI once your balance is scheduled to reach, or you pay it down to, 80% of the home's original value, if you meet conditions such as a good payment history. PMI generally ends automatically when the balance is scheduled to reach 78%. Lenders may require an appraisal or other evidence for some requests.
PMI pricing varies by lender, credit profile and down payment, so this article does not estimate it. Ask for your actual quote.
FHA works differently. HUD says the FHA insurance agreement is between FHA and the mortgage company, so borrowers who want to stop paying monthly premiums should ask their servicer what it requires. For many borrowers, refinancing into a different loan is the practical exit.
Questions that actually matter
- What is the monthly mortgage insurance on each loan option, in dollars?
- On the FHA option, is the annual premium for the life of the loan or 11 years?
- On the conventional option, when does the amortization schedule reach 80% and 78%?
- Would a later refinance out of FHA be realistic, and what would it cost?
- Does a larger down payment change the premium or the duration?
The takeaway
Interpretation: compare total mortgage insurance over the years you expect to keep the loan, using lender figures. The cheaper monthly payment is not always the cheaper loan.