PMI vs. FHA MIP: Which Mortgage Insurance Costs More?

At a 760 credit score, conventional PMI costs $111 per month on a $289,500 loan. FHA MIP costs $133 per month on the same amount. Conventional wins by $22 a month.

At a 640 credit score, the numbers flip. PMI jumps to $316 per month. FHA MIP stays at $133. Now FHA saves you $183 every single month [1].

That crossover point, somewhere around a 720–740 credit score, is the most important number in mortgage insurance. Most borrowers never learn it exists. It determines whether you should apply for a conventional loan or an FHA loan, and it can change the total cost of your home by tens of thousands of dollars.

30-Second Summary: PMI (conventional loans) is cheaper than FHA MIP if your credit score is 740+. Below 680, FHA MIP is almost always cheaper. But FHA MIP is harder to remove (permanent for most borrowers), while PMI drops off at 80% LTV. Long-term cost depends on both the monthly rate and how long you're stuck paying it.

How Each Insurance Works

Conventional PMI (Private Mortgage Insurance)

PMI is required on conventional loans when your down payment is less than 20%. It's arranged through private insurance companies like MGIC, Arch MI, Enact, or National MI.

Key features:

• No upfront cost (unless you choose single-premium PMI)
• Annual rate: 0.46% to 1.50% depending on credit score [1]
• Cancellable at 80% LTV (borrower request) or 78% LTV (automatic) [2]
• Credit-score sensitive: The rate you pay varies dramatically based on your FICO

FHA MIP (Mortgage Insurance Premium)

FHA loans are insured by the Federal Housing Administration. MIP has two components:

• Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing (usually rolled into the loan) [3]
• Annual MIP: 0.55% for most borrowers (loans over 15 years with LTV above 90%) [3]
• Not credit-score sensitive: Everyone pays the same rate regardless of FICO
• Permanent for borrowers who put down less than 10%. If you put down 10%+, MIP drops off after 11 years [4].

That permanence is the FHA's biggest drawback. Conventional PMI goes away. FHA MIP often doesn't.

Side-by-Side Cost Comparison

Let's compare on a $300,000 home purchase with a 3.5% down payment ($10,500 down). Loan principal: $289,500.

FHA Loan (MIP)

Conventional Loan (PMI) at Different Credit Scores

At a 760 score, PMI saves $22/month. At a 640 score, FHA MIP saves $183/month. The crossover is around 720–740.

But monthly cost is only half the story.

The Long-Term Calculation

Here's what separates a good analysis from a great one. FHA MIP is permanent. PMI is not. Over time, this changes everything.

Scenario: 700 Credit Score, $289,500 Loan

Year 1–5:

• FHA monthly insurance: $133
• PMI monthly insurance: $217
• FHA advantage: $84/month × 60 = $5,040 saved

Year 6–10 (assume PMI removed at year 7 when LTV hits 80%):

• FHA monthly insurance: $133 (still paying)
• PMI monthly insurance: $0 (cancelled)
• PMI advantage: $133/month × 36 months = $4,788 saved

Total over 10 years:

• FHA total: $133 × 120 = $15,960 + $5,066 upfront = $21,026
• PMI total: $217 × 84 + $0 × 36 = $18,228

Even though PMI was more expensive monthly, the 700-score borrower pays $2,798 less total because PMI goes away. The gap widens every year after that. By year 15, the FHA borrower has paid over $5,000 more in insurance than the conventional borrower who hasn't paid a dime of PMI since year 7.

For borrowers with scores below 680, the math is different. Monthly PMI gets so expensive that even with cancellation, FHA can still win over 10 years. Run the numbers for your specific score.

The FHA Escape Route

The only way most FHA borrowers eliminate MIP is to refinance into a conventional loan once they have 20% equity. This requires:

• A new appraisal
• Closing costs (typically 2–3% of the loan)
• A credit score of 620+ (680+ for best rates)
• Enough home appreciation or principal paydown to reach 80% LTV

For many first-time buyers who start with FHA loans and lower credit scores, this refinance becomes viable within 3–5 years as their equity builds and credit improves.

82% of FHA purchase loans go to first-time homebuyers [5]. Many of them won't stay in FHA forever. Think of the FHA loan as a stepping stone, not a destination.

Which Should You Choose?

The upfront MIP ($5,066 on a $289,500 loan) is often overlooked. It's rolled into the loan balance, which means you're paying interest on your insurance. That adds another $100+ per year in hidden cost.

Your Next Move

1. Check your credit score for free at AnnualCreditReport.com. Your score determines which insurance is cheaper.
2. Get quotes for both loan types. Ask lenders for a side-by-side conventional vs. FHA comparison with monthly PMI/MIP amounts.
3. Calculate total cost over your expected stay. Don't just compare monthly payments. Factor in how long you'll pay insurance.
4. If you go FHA, plan the refinance. Mark a calendar reminder to check conventional refi rates once you reach 80% LTV.
5. Review the latest mortgage insurance costs and cancellation rules for a deeper dive on PMI removal strategies. You can also explore today's mortgage rates to see what your FHA-to-conventional refinance might cost.

References

1. Urban Institute. (2024). Housing Finance At A Glance: Monthly Chartbook, March 2024. Urban.org.
2. Consumer Financial Protection Bureau. (2024). The Homeowners Protection Act of 1998. CFPB.gov.
3. U.S. Department of Housing and Urban Development. (2023). Mortgagee Letter 2023-05: Reduction of FHA Annual MIP Rates. HUD.gov.
4. U.S. Department of Housing and Urban Development. (2025). FHA Single Family Housing Policy Handbook 4000.1. HUD.gov.
5. Federal Housing Administration. (2024). Annual Report to Congress: FHA Mutual Mortgage Insurance Fund Fiscal Year 2024. HUD.gov.