The Mortgage Insurance Freedom Act: Explained

Overview: Mortgage Insurance Freedom Act

The Mortgage Insurance Freedom Act would change how long you pay annual mortgage insurance on a new Federal Housing Administration (FHA) loan. Under the proposal, annual mortgage insurance would end once your loan-to-value reaches seventy-eight percent.

The bill sets a clear rule for how the seventy-eight percent test works, and it also directs the U.S. Department of Housing and Urban Development (HUD) to create a borrower-friendly process and education so FHA homeowners know how to request cancellation when they qualify.

The Mortgage Insurance Freedom Act was introduced in the 119th Congress. Note that bills often change on their way to becoming law, so this page will update as new details emerge. For real-time updates, subscribe to our newsletter.

What Is the Mortgage Insurance Freedom Act?

The Mortgage Insurance Freedom Act is a proposal to end the annual FHA mortgage insurance premium once a new FHA-insured loan reaches seventy-eight percent loan-to-value.

This change applies only to FHA mortgages endorsed for insurance after the law is enacted. If you already have an FHA loan when the law takes effect, this bill does not automatically change your current mortgage insurance rules.

How The 78 Percent Rule Works Under The Mortgage Insurance Freedom Act

The bill uses a specific way to measure whether you have reached seventy-eight percent loan-to-value.

Here’s what the Mortgage Insurance Freedom Act says the calculation is based on:

• The loan-to-value test uses the lower of the purchase price or the original appraised value
• When your loan-to-value is at or below seventy-eight percent, HUD cannot collect annual mortgage insurance
• The rule does not include any upfront mortgage insurance premium that was added to your loan balance

In simple terms, the bill ties cancellation to your original value baseline, and it stops annual mortgage insurance when your remaining balance falls to the required level.

Fund Safety Exception In The Mortgage Insurance Freedom Act

The Mortgage Insurance Freedom Act includes a fund-safety exception connected to the FHA Mutual Mortgage Insurance Fund capital ratio.

When the fund’s capital ratio drops below two percent, the bill permits annual premiums to continue for loans that are still paying mortgage insurance on the day the ratio falls below that level.

This exception is designed to connect mortgage insurance cancellation to the health of the FHA insurance fund.

HUD Rules And Borrower Process In The Mortgage Insurance Freedom Act

The Mortgage Insurance Freedom Act directs HUD to implement the change quickly and clearly.

The bill requires HUD to:

• Issue rules within one hundred eighty days
• Create a borrower process for proving the loan has reached seventy-eight percent loan-to-value
• Provide outreach and education so FHA borrowers know how to request annual mortgage insurance cancellation

The goal is for you to have a clear path to show eligibility and request cancellation when your balance reaches the bill’s threshold.

Who Qualifies Under The Mortgage Insurance Freedom Act?

Eligibility is based on the type and timing of your FHA loan, plus the loan-to-value threshold.

You may benefit from the Mortgage Insurance Freedom Act when:

• Your mortgage is endorsed for FHA insurance after the law is enacted
• Your loan-to-value reaches seventy-eight percent using the bill’s valuation method
• The fund-safety exception is not in effect at the time your loan reaches the threshold

If those conditions are met, the bill says HUD cannot collect annual FHA mortgage insurance.

Who Sponsors the Mortgage Insurance Freedom Act?

H.R. 5508 is a House bill in the 119th Congress. Sponsor and cosponsor information can change as the bill moves through Congress and gains support.

For the latest legislative updates and cosponsors, see the Bill Tracker above.