October 12, 2002, Reviewed December 12, 2007, Revised November 5, 2008

The following rules apply to the cancellation of FHA mortgage insurance.

On loans closed on or after January 1, 2001, FHA's annual mortgage insurance premium will automatically be canceled-once the unpaid principal balance, excluding the upfront premium, reaches 78% of the lower of the initial sales price or appraised value. The 78% is based on the initial amortization schedule, and does not take account of extra payments. This cancellation rule applies only to FHA's mainstream insurance program. It does not cover mortgages on condominiums or Section 203(k) rehabilitation loans, among others.

Borrowers who have made additional payments to principal must take the initiative, through their lender, to have the insurance terminated using the 78% rule. The insurance must be in force for at least 5 years unless the original term was for 15 years or less, in which case there is no minimum period.

For cancellation rules on private mortgage insurance, see Canceling Private Mortgage Insurance (2).