Yes, refinancing from an FHA loan to a conventional loan can eliminate mortgage insurance entirely if you have 20% equity. FHA MIP stays for the life of the loan (unless you put 10%+ down), while conventional PMI drops off at 80% LTV. If your home has appreciated enough to give you 20% equity, refinancing to conventional eliminates MI permanently.
This is one of the most common and financially beneficial refinance strategies, especially for homeowners in markets with strong appreciation.
FHA MIP vs Conventional PMI Rules
The critical difference: FHA loans with less than 10% down require MIP (Mortgage Insurance Premium) for the entire life of the loan. You cannot request removal. Conventional loans with PMI allow removal at 78-80% LTV. This means FHA borrowers pay MI until they refinance, sell, or pay off the loan entirely.
When Refinancing Saves Money
If your home has appreciated enough to give you 20% equity, refinancing from FHA to conventional eliminates MI and reduces your monthly payment. On a $250K loan, eliminating 0.85% MIP saves $177 per month. Subtract the new loan's closing costs and calculate the breakeven.
Appraisal for Equity
The key variable is whether your home has appreciated enough. A new appraisal will determine your current market value. If you purchased a $250K home with 3.5% down (FHA) and it is now worth $300K, you have roughly 18% equity just from appreciation -- close to the 20% threshold for conventional refinancing.
Break-Even Calculation
Closing costs on a refinance typically run 2-5% of the loan amount. If costs are $5,000 and you save $200/month by eliminating MI, your breakeven is 25 months. If you plan to stay in the home past that point, the refinance pays for itself and saves money every month thereafter.
Process and Timeline
The process takes 30-45 days. You will need a new appraisal, credit check, income documentation, and closing. The new loan replaces your FHA loan with a conventional loan without MI. Your rate may change based on current market rates and your credit profile.
