Definition

• An MIP is a fee paid by someone getting a mortgage for mortgage insurance on the loan. The fee is a percentage of the total loan amount to assure the lender you will not default on the loan.
  
  

Payment

• The mortgage insurance premium may be collected as a lump sum payment at the close of a loan or as a series of monthly payments throughout the life of the loan. The MIP may also be a combination of a lump sum payment and a monthly payment.
  
  

FHA/HUD MIPs

• A lender applying for an FHA-insured loan pays an MIP of 2.25 percent of the total loan amount. The higher the loan to value ratio, the higher the MIP payment. If the borrower is only able to make a small down payment, the loan to value (LTV) ratio is higher than for one who makes a large down payment. High LTV loans may require larger MIPs to cover the risk to the lender of default. Loans insured by the FHA and Housing and Urban Development (HUD) tend to have MIP's tend to be around 1.5 percent up front with added monthly payments on the balance.
  
  

Canceling FHA MIPs

• Before 2001, FHA stipulated that monthly MIPs were to last the life of the loan and could not be canceled for any reason. This policy was changed in January of 2001. Since that time, MIPs are automatically canceled when the loan to value ratio of a 15 year or longer term loan reaches 78 percent and the borrower has paid premiums for at least five years. For 15 year or shorter term loans, MIPs are canceled when the loan to value ratio reaches 78 percent, no matter how long the borrower has paid premiums. After 2001, mortgages with LTV ratios of 89.9 percent and a term of less than 15 years are no longer charged mortgage insurance premiums. This policy particularly benefits borrowers who pay loans for many years.
  
  

Private MIPs

• Private lenders charge mortgage insurance premiums for mortgage insurance on loans where the down payment is less than 20 percent, the loan is government insured or where it is their policy to require mortgage insurance. Mortgage insurance is not mortgage life insurance, which pays only if you die before paying the loan off. Mortgage insurance pays the lender if you default.
  
  

Refundable

• If you had an FHA loan since 2001, it is likely you may be eligible for an FHA MIP refund. The refund depends on when you took out the loan and how long you paid on it. Go to the FHA/HUD website to find out if they owe you money; all you'll need is your FHA case number.