The Real Cost of mortgage insurance FHA vs conventional.
Both loans charge you mortgage insurance when you put down less than 20 percent. The difference that costs real money is what happens to that insurance over time. On a conventional loan it eventually cancels. On a low down payment FHA loan it usually runs for the life of the loan. This shows the gap, in dollars, on your own numbers.
$14,000 down (3.5% of price)
Default 6.48%, 30-year fixed, as of June 4, 2026, Freddie Mac PMMS (freddiemac.com/pmms). Editable.
Illustrative only. Your real PMI rate depends on credit, down payment, and the insurer.
An assumption you choose, not a forecast. It sets what the spared premium could have grown to.
The FHA premium that keeps running after a conventional borrower's PMI cancels, invested instead at 7% to your 30-year mark, is worth this much. That is not a reason to avoid FHA. For a buyer who cannot qualify any other way, getting into the home has real value too. It is the size of the number, so you can weigh it. 7% is an assumption you can change below; it is not a promise.
| Per the numbers above | FHA | Conventional |
|---|---|---|
| Monthly principal and interest | $2,477 | $2,435 |
| Monthly mortgage insurance (year 1) | $180 | $177 |
| When mortgage insurance ends | Never (life of loan) | Year 12 (month 143) |
| Total mortgage insurance paid (over 30 years) | $50,094 | $25,122 |
| Of which: FHA upfront premium (financed) | $6,755 | None |
On these inputs the FHA borrower pays $24,971 more in mortgage insurance over 30 years. None of it builds equity.
Your $14,000 down (3.5% of price) leaves a $386,000 base loan. FHA finances an upfront premium on top of it, so the FHA balance starts higher.
FHA loan = base loan + (upfront MIP rate * base loan)
Upfront MIP financed: $6,755.
Conventional PMI is charged each month until the amortizing balance reaches 78% of the original home value, then stops. FHA annual MIP runs for the full term when the down payment is under 10%, or 11 years otherwise.
Monthly PMI = (PMI rate * base loan) / 12 Monthly MIP = (annual MIP rate * balance at start of year) / 12
Conventional PMI ends: Year 12 (month 143). FHA MIP ends: Never (life of loan).
Over 30 years the FHA borrower pays $50,094 in mortgage insurance versus $25,122 conventional, a $24,971 gap that builds no equity.
Extra FHA mortgage insurance = $50,094 - $25,122 = $24,971
The Real Cost takes each FHA premium charged after the conventional PMI would have cancelled and grows it at 7% to your 30-year mark. That future value is $45,653.
Real Cost = future value, at the chosen return, of each post-cancellation FHA premium, summed to the horizon
Rates are illustrative and editable. FHA rules are set by HUD and change by Mortgagee Letter.
Educational only. Rates are illustrative and editable. The base case assumes no home-price appreciation, so conventional PMI cancels strictly on the payment schedule; real appreciation can cancel it sooner. FHA rules are set by HUD and change by Mortgagee Letter.
Assumptions
- Rates are illustrative. The same interest rate applies to both loans unless you set a separate FHA rate.
- The loan term is 30 years. "Expected years in the home" caps the totals and the Real Cost horizon.
- No home-price appreciation in the base case, so conventional PMI cancels strictly on the payment schedule.
- The annual return is an assumption you set, not a promise. It sets what the spared FHA premium could have grown to.
Limitations
- Real PMI rates are specific to your credit, down payment, and insurer. The credit-band presets are rough guides, not quotes.
- FHA MIP rates and duration rules are set by HUD and change by Mortgagee Letter. Confirm the current figures before relying on them.
- Refinancing or moving changes the result. The Real Cost assumes you keep the loan to your chosen horizon.
- Home-price appreciation can cancel conventional PMI much sooner than the payment schedule alone, which widens the gap.
Sources
- FHA annual MIP (0.55% for loans above 95% loan-to-value on a 30-year term with a base loan at or below $726,200, lasting the life of the loan when the down payment is under 10%) and the 1.75% upfront MIP: HUD Mortgagee Letter 2023-05, which amends Appendix 1.0 of the FHA Single Family Housing Policy Handbook 4000.1 (hud.gov).
- Conventional PMI cancellation (80% loan-to-value on request, 78% automatic): the Homeowners Protection Act and the Consumer Financial Protection Bureau (consumerfinance.gov).
- Default interest rate (6.48%, 30-year fixed, as of June 4, 2026): Freddie Mac Primary Mortgage Market Survey (freddiemac.com/pmms).
- It is not a rate quote, and not a prediction of your rate.
- It is not advice to choose FHA or conventional, or to refinance.
- It is not a forecast of any market return; the return is an assumption you set.
- It shows the structural cost difference so you can ask your lender the right questions.
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