The Homeowners Protection Act does not reach the USDA annual fee: the long-term cost

HPA cancellation rights cover private mortgage insurance on conventional loans only; the USDA annual fee lasts for the life of a guaranteed loan and ends only by payoff or refinance, which changes the comparison with a low-down conventional loan.

What the Act covers and what USDA charges instead

The Homeowners Protection Act requires a conventional lender to cancel PMI at your request when the balance reaches 80% of the original value and to terminate it automatically at 78%, with a good payment history. Government guarantee premiums fall outside the statute. A Section 502 Guaranteed loan carries an annual fee of 0.35% of the average outstanding principal balance, paid monthly through escrow, and USDA’s program sets no point at which it stops. There is no request you can make to the servicer and no automatic termination; the fee ends with the loan.

Putting a number on it

On a $220,000 loan the annual fee starts near $770 a year, about $64 a month, and declines slowly as the balance amortizes, reaching roughly $600 a year after a decade at typical rates. A comparable conventional loan with 3% down might carry PMI between $90 and $200 a month depending on credit score, but that PMI would cancel after several years of payments or sooner with appreciation. Over five years the USDA fee is usually cheaper; over fifteen, the conventional loan often wins if your score is strong. FHA is the other reference: its annual premium on a low-down-payment loan is higher than USDA’s and also permanent.

The only exits

The fee stops when you pay off the loan, sell, or refinance. A USDA streamlined-assist refinance keeps you in the program and the fee continues at the then-current rate; a conventional rate-and-term refinance at 80% loan-to-value or below removes it entirely. The refinance costs money, so the calculation is the closing costs versus the remaining annual fee payments over the years you expect to stay. If rates have risen since you bought, the exit may not be worth taking; a higher rate can cost more than the fee it eliminates. Use the payment tables to compare the two payments side by side.

Direct loans: no fee, but recapture

Section 502 Direct loans charge no annual fee and no PMI. The trade-off is subsidy recapture: when you sell or stop living in the home, USDA may recover some of the payment assistance it provided, up to a share of your appreciation. That is not mortgage insurance and HPA has nothing to say about it, but it belongs in the same mental column of costs that do not appear in the monthly payment. USDA provides an annual statement of the subsidy received, and you can ask for a recapture estimate before listing the home.

Disclosures you will not get

HPA requires an initial disclosure and annual reminders about cancellation rights for PMI loans. USDA borrowers do not receive them because there is nothing to cancel; what you receive instead is the fee line on your statement and on the Closing Disclosure. General PMI rules are on the HPA page and in PMI removal.

What to check

• Budget the 0.35% annual fee for the full life of the guaranteed loan, not until 78% LTV.
• Compare USDA, FHA and 3%-down conventional on total insurance cost over your expected stay.
• Revisit a conventional refinance once you have around 20% equity and rates permit.
• On a Direct loan, ask USDA for a subsidy recapture estimate before selling.
• Do not expect HPA cancellation notices; none are due on a USDA loan.

Frequently asked questions

My USDA loan is at 75% loan-to-value. Can I ask the servicer to drop the annual fee?

No. The 0.35% annual fee is a USDA program charge, not private mortgage insurance, and the Homeowners Protection Act’s 80% and 78% rules do not apply. Your options are to keep paying it, or to refinance into a conventional loan with no PMI at that equity level if the rate and closing costs make sense.

Is the USDA annual fee cheaper than PMI?

Usually, month for month. At 0.35% it is below most PMI rates for low-down-payment borrowers, and far below FHA’s annual premium. The difference is duration: PMI cancels, the USDA fee does not. For a short stay or a modest credit score, USDA tends to cost less; for a long stay with strong credit, cancellable PMI can end up cheaper.

The rule in full: Homeowners Protection Act (PMI cancellation). The borrower profile: Rural and USDA buyers. Related guides: Conventional vs FHA vs VA vs USDA: the four loan types compared · Down payment assistance programs: how they work and how to find yours · PMI removal: the 80% request, the 78% automatic cancellation, and the appraisal route · PMI for first-time buyers: what it costs and how to get rid of it.

Other federal rules for rural and usda buyers

TILA / Reg Z · RESPA · TRID disclosures · ECOA · Fair Housing Act · HMDA · SAFE Act / NMLS · ATR / QM · HOEPA · Servicing rules · FCRA · Flood insurance · MARS rule · SCRA · LO compensation

HPA / PMI for other borrowers

First-time buyers · Conventional borrowers · Veterans · Self-employed · Investors · Retirees · Bad credit · Foreign nationals · Physicians · Heroes · Condo & second home · Refinancing