Types of Mortgage Insurance: PMI, MIP, and Costs

Mortgage insurance is often required when your down payment is less than 20%. It protects the lender, but the type you pay - and how long you pay it - varies by loan program.

Start with our comprehensive guide to private mortgage insurance.

What Is Mortgage Insurance?

Mortgage insurance is a policy that protects the lender if a borrower defaults. It's typically required when the down payment is less than 20% of the purchase price. The premium is usually added to your monthly mortgage payment.

This insurance makes homeownership more accessible, especially for first-time buyers. For a full overview of conventional loans, visit our conventional loan guide.

How Private Mortgage Insurance (PMI) Works

Private Mortgage Insurance (PMI) applies to conventional loans not backed by a government agency. It's paid by the borrower to protect the lender.

PMI costs depend on your credit score, loan amount, and down payment. Use our piggyback mortgage calculator to weigh your options.

When Is PMI Required?

PMI is required on conventional loans when the loan-to-value ratio (LTV) exceeds 80% - i.e., your down payment is less than 20%. Read more on our do conventional loans require PMI page.

Types of Private Mortgage Insurance (PMI)

PMI can be structured in several ways. Each impacts your monthly payment and long-term cost differently.

Borrower-Paid Mortgage Insurance (BPMI)

• Paid monthly as part of your mortgage payment.
• Can be canceled once you reach 20% equity.
• Provides a clear path to remove PMI as your loan balance drops.

Learn more about cancellation rules on our when does private mortgage insurance go away page.

Single-Premium Mortgage Insurance (SPMI)

• One-time upfront payment at closing.
• No monthly PMI payments.
• Can be financed into the loan amount.

Lender-Paid Mortgage Insurance (LPMI)

• Lender pays the premium; borrower gets a slightly higher interest rate.
• Cannot be canceled separately from the loan.

Compare LPMI with other options using our mortgage program comparison calculator.

Split-Premium Mortgage Insurance

• Combines a smaller upfront fee with reduced monthly premiums.
• Often used with FHA loans.

Mortgage Insurance Premium (MIP) for FHA Loans

FHA loans use Mortgage Insurance Premium (MIP), which includes an upfront fee (UFMIP) and an annual premium paid monthly. Unlike conventional PMI, FHA MIP usually lasts the entire loan term if your down payment is under 10%.

Compare conventional vs. FHA with our is a conventional mortgage better than FHA guide.

Calculating the Cost of Mortgage Insurance

• Credit Score: Higher scores = lower PMI rates.
• LTV Ratio: Higher LTV (smaller down payment) = higher cost.
• Loan Amount: Premium is a percentage of the loan.

Estimate your payment with our conventional loan monthly payment calculator.

Typical PMI Cost Ranges

PMI typically costs 0.2% to 2.0% of the original loan amount per year. For a $300,000 loan, that's $600–$6,000 annually. For a deeper breakdown, see how much is private mortgage insurance on a conventional loan.

How Long Do You Pay Mortgage Insurance?

Conventional Loan PMI Duration

You can request PMI cancellation at 20% equity. Lenders must automatically terminate it at 22% equity (based on the original value). Use our amortization calculator to see when you'll reach these milestones.

FHA Loan MIP Duration

If your FHA down payment is under 10%, MIP lasts the entire loan term. If it's 10% or more, MIP lasts 11 years.

How to Get PMI Removed

Requesting Cancellation at 20% Equity

• Submit a written request to your servicer.
• Ensure you're current on payments.
• You may need a new appraisal to confirm home value.

Understand the appraisal process with our conventional loan appraisal requirements guide.

Automatic Termination at 22% Equity

The Homeowners Protection Act (HPA) requires automatic PMI cancellation when your balance reaches 78% of the original value.

Removing PMI Through Home Improvement

If renovations increase your home's value, you may reach 20% equity sooner. Consider the Fannie Mae HomeStyle renovation loan to fund improvements.

Alternatives to Paying Mortgage Insurance

Piggyback Loans

An 80/10/10 piggyback loan avoids PMI by combining a first mortgage (80%) with a second mortgage (10%) and a 10% down payment. Compare piggyback loans vs. PMI in our piggyback loan vs PMI article.

Lender-Paid PMI

LPMI swaps a separate PMI payment for a slightly higher rate. See if it's right for you with our payment comparison calculator.

Loans with Built-in Insurance

Low-down-payment programs like the 97 LTV conventional loan and HomeReady mortgage include their own insurance structures.

Mortgage Insurance for Investment Properties and Second Homes

Lenders often require larger down payments for second homes and investment properties, which may help you avoid PMI. See our investment property loan guide for details.

Frequently Asked Questions

Is mortgage insurance tax-deductible?

For most taxpayers, the deduction for mortgage insurance premiums expired at the end of the 2021 tax year. Consult a tax professional for the latest legislative updates.

Can I roll the upfront mortgage insurance into my loan?

Yes. FHA loans allow upfront MIP to be financed. For conventional loans with single-premium PMI, financing the premium is also common.

Does a higher credit score affect PMI?

Yes. Higher credit scores typically lead to lower PMI rates. Learn more about conventional loan credit score requirements.

What is the difference between mortgage insurance and homeowner's insurance?

Mortgage insurance protects the lender if you default. Homeowner's insurance protects you and the lender from physical damage to the property. You may also need title insurance to protect your ownership rights.

Conclusion

Mortgage insurance enables homeownership for buyers with smaller down payments. By understanding the different types - PMI, MIP, and their alternatives - you can make informed choices and save money. Explore more in our mortgage articles library.