Definition
The mortgage insurance charged on FHA loans: an upfront premium (a small percentage of the loan, usually rolled into the balance) plus an annual premium paid monthly. Unlike PMI on conventional loans, MIP on a low-down-payment FHA loan generally lasts the life of the loan; the usual exit is refinancing into a conventional loan after building 20% equity.
Why it matters
MIP is the ongoing cost of FHA's easier entry, and the fact that it does not cancel at 20% equity the way PMI does changes the long-term math. Many FHA borrowers treat the loan as a starter mortgage with a refinance already penciled in.
Example
On a $290,000 FHA loan, the upfront premium adds about $5,000 to the balance and the annual premium runs roughly $130 a month. Four years later, at 78% LTV, a conventional refinance drops the $130; a conventional borrower's PMI would have fallen away on its own.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.