The headlines this week: a bipartisan group of lawmakers in the House has reintroduced the Mortgage Insurance Freedom Act. If passed, it would allow FHA borrowers to cancel their mortgage insurance premiums (MIPs) once their loan-to-value ratio reaches 78% — the same way conventional private mortgage insurance (PMI) works.

Sounds great, right? In theory, yes. It puts FHA borrowers on a more level playing field with conventional borrowers. But here’s the reality: most FHA borrowers won’t stay in their home — or their loan — long enough to ever see that benefit.

Why Cancellation Sounds Bigger Than It Is

  • With the current rule, FHA borrowers pay annual MIP for the life of the loan.
  • The bill says that once you hit 78% LTV, MIP would drop off.
  • Problem: On a 30-year loan with minimum FHA down payment, it often takes 9–11 years to naturally reach 78% LTV through amortization.
  • The average FHA borrower sells or refinances in 5–7 years.

👉 Translation: most FHA borrowers never stick around long enough to benefit from cancellation.

Where the Real Cost Hits Borrowers

Two pieces hit borrowers much sooner:

  1. Upfront FHA Mortgage Insurance Premium (UFMIP)
    • Currently 1.75% of the loan amount, usually financed into the loan.
    • On a $300,000 home, that’s $5,250 added to your loan balance immediately.
    • That fee impacts monthly payments from day one.
  2. Annual MIP
    • Typically 0.55% of the loan balance.
    • On that same $300,000 home, it adds about $137/month to the mortgage payment.

These costs matter far more to most borrowers than whether MIP falls off in year 10 or 11.

What Would Really Help

If policymakers want to make FHA more affordable and competitive, the focus should be on:

  • Reducing the upfront fee (UFMIP): gives instant relief to every FHA borrower.
  • Cutting the annual MIP: lowers monthly payments right away, not a decade later.
  • Both together: real affordability impact from day one of homeownership.

The Bottom Line

We applaud the intent of the Mortgage Insurance Freedom Act. It’s fair and logical to align FHA with conventional PMI rules. But if the goal is to truly help today’s buyers — especially first-time and lower-income buyers who rely on FHA — the bigger win would be reducing the upfront and annual premiums that every borrower pays immediately.

At MortgageSimplified.net, our job is to cut through the noise and give borrowers the full picture. Because saving $5,000 at closing and $137/month starting today is a lot more powerful than waiting a decade for cancellation that most people will never see.

Posted in Uncategorized