- Borrower-paid (BPMI)
- Lender-paid (LPMI)
BPMI is the most straightforward. It’s a monthly fee added on to your mortgage insurance that can be removed once you reach 20% home equity.
LPMI programs like PMI Advantage allow you to avoid a monthly mortgage insurance payment in exchange for paying a slightly higher interest rate than you would on a loan without LPMI. Depending on market conditions at the time, you may be able to save money in a couple years by refinancing at a lower rate without mortgage insurance once you reach at least 20% equity in your home.
A variation of LPMI lets you pay for part or all of the PMI policy in a lump sum at closing. If you make a partial payday loans Wooster Ohio payment, you’ll get a lower interest rate with LPMI. If you pay for the whole policy, you’d get a rate identical to the one you’d receive if you weren’t paying LPMI, but it would be without the extra monthly payment associated with BPMI, regardless of the size of your down payment.
Example Premium Cost
To give you an idea of how much you can expect to pay for mortgage insurance, let’s take an example from major mortgage insurance provider MGIC . When you read this chart, you’re going to see something called LTV , a comparison of your outstanding loan balance to your home value. This stands for loan-to-value ratio and you can think of it as the inverse of your down payment or equity amount. For example, your LTV would be 97% if you had a down payment of 3%.
For this scenario, let’s assume your mortgage lender has determined you need the maximum coverage amount of 35% based on having a 3% down payment. Further, let’s also assume you have a credit score of 750. This is a $300,000 30-year fixed-rate loan with BPMI.
By looking at the first table on the sheet, we see that the BPMI price for our scenario is 0.7%. This means that your annual mortgage insurance cost is 0.7% of your overall loan amount. This is divided into monthly PMI payments so that your monthly cost is actually $175 ($300,000 ? 0.007 equals $2, = $175).
It’s worth noting that, although we based this example on public rate sheets, lenders negotiate their own rates with mortgage insurers. Therefore, the mortgage insurance cost is certainly something to consider when comparing lenders. Rocket Mortgage ® is able to get some of the lowest rates available in the industry for our clients for both BPMI and LPMI. 1 When shopping, PMI premiums can be another point comparison.
PMI Vs. MIP
So far we’ve talked about private mortgage insurance when it comes to conventional loans. However, PMI is not the only type of mortgage insurance. Let’s start by talking about mortgage insurance associated with FHA loans .
While PMI is provided by private insurance companies, the Federal Housing Administration handles the mortgage insurance premiums (MIP) that FHA borrowers pay. MIP is required on all FHA loans for which an application was completed after .
An FHA loan is a great option for first-time home buyers because it has lower down payment and credit score requirements (3.5% and 580 median FICO ® , respectively).
How Does MIP Work?
If you have an FHA loan, you pay a portion of the premium up front at the close of the loan and then continue to pay mortgage insurance premiums on a monthly basis. The upfront premium is always 1.75% of the loan amount. If you can’t afford to pay this at closing, it can be financed into your loan amount.
