How this instrument works
An FHA loan is insured by the Federal Housing Administration, a government agency that reimburses the lender if the borrower defaults. That guarantee is what lets FHA lenders accept down payments as low as 3.5% and credit scores conventional lenders would decline. The trade is mortgage insurance premium (MIP): every FHA borrower pays it, regardless of how much they put down, which is the single biggest way an FHA loan's true monthly cost differs from a same-rate conventional one.
The payment math splits into two pieces computed separately and then added together. Principal and interest follow the standard amortizing-loan formula — the amount borrowed, the monthly rate, and the number of payments determine a fixed payment that retires the loan exactly on schedule. MIP is unrelated arithmetic: HUD sets an annual premium rate based on the loan's term and loan-to-value ratio, and this instrument applies that rate to the loan amount and divides by twelve, matching how most lenders quote the monthly figure.
What this sheet leaves out matters. It does not include the upfront mortgage insurance premium (UFMIP, currently 1.75% of the loan, due at closing or financed in), property tax, homeowner's insurance, or HOA dues. It also assumes a flat MIP applied to the original balance for the life of the loan — the arrangement for most 30-year FHA loans with over 90% loan-to-value at closing — rather than the automatic cancellation that applies to loans that started at 90% or below.
- Enter the Loan amount you are financing under the FHA program.
- Set the Interest rate your lender quoted for the loan.
- Choose the Loan term in months — 360 for a standard 30-year FHA loan, 180 for 15 years.
- Enter the Annual mortgage insurance premium rate — HUD publishes current MIP tables by loan-to-value and term.
- Read the Principal & interest payment, Monthly mortgage insurance, and Total monthly payment figures below.
Worked example — a $300,000 FHA loan at 6%
Borrow $300,000 at a 6% annual rate over a 360-month (30-year) term. The monthly rate is r = 0.5%, N = 360 payments, and the amortizing formula returns a principal-and-interest payment of $1,798.65 — identical to what a conventional loan at the same rate and term would produce, since this half of the math does not know the loan is FHA-insured.
FHA layers on annual mortgage insurance at 0.55% of the loan amount: $300,000 × 0.0055 ÷ 12 = $137.50 every month, charged regardless of how much equity has built up. Total monthly payment is $1,798.65 + $137.50 = $1,936.15 — about 7.6% above the principal-and-interest figure alone, and on a loan this size, that MIP charge alone runs roughly $1,650 a year with no automatic end date if the original loan-to-value was above 90%.
Questions
Why does an FHA loan charge mortgage insurance no matter my down payment?
FHA insures the lender against default in exchange for accepting borrowers with lower credit scores and down payments as small as 3.5%. That guarantee has a cost, funded by MIP, and every FHA borrower pays it — unlike a conventional loan, where private mortgage insurance drops off once equity crosses 20%. On loans with a loan-to-value above 90% at closing, annual MIP typically runs for the life of the loan.
Does this total include the upfront mortgage insurance premium?
No. FHA loans also charge an upfront mortgage insurance premium (UFMIP), currently 1.75% of the loan amount, due at closing or financed into the balance. This instrument computes only the ongoing monthly principal, interest, and annual MIP charge — add the upfront premium separately when budgeting closing costs.
Can FHA mortgage insurance ever be removed?
Sometimes. If the loan-to-value ratio was 90% or below at closing, annual MIP cancels automatically after 11 years. Above 90% LTV, most FHA loans carry MIP for the full term, and the usual way off is refinancing into a conventional loan once enough equity has built up — a decision that depends on rates and closing costs at that time, and one this calculator does not evaluate.
Why is the Monthly mortgage insurance figure flat instead of shrinking with the balance?
This instrument applies HUD's annual MIP rate to the original loan amount you entered, divided by twelve — the way most lenders quote the monthly figure for a fixed-term FHA loan. Some servicers recompute the charge against the declining balance each year instead, which produces a very slowly shrinking figure; the difference is usually a few dollars a month, not the amount shown here.
How does the FHA formula differ from a conventional mortgage calculation?
The principal-and-interest math is identical — the same amortizing-loan formula applies to both. The difference sits entirely in the insurance layer: FHA's MIP is mandatory and set by HUD, while conventional PMI rates vary by lender and credit profile and disappear entirely with a 20% down payment. Compare the Total monthly payment here against a conventional quote at the same rate to see the size of that insurance gap.
Who typically takes out an FHA loan instead of a conventional one?
Buyers with limited savings for a down payment, or a credit score below the roughly 620 threshold many conventional lenders prefer, often qualify for FHA financing when they would not for a conventional loan. First-time buyers and people rebuilding credit after a financial setback are the most common users; someone who can put 20% down with strong credit usually pays less overall with a conventional loan and no mandatory MIP.
References
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.