Mortgage Insurance: PMI vs. MIP
What is mortgage insurance—and how does it work? Mortgage insurance helps protect the lender when a borrower has less equity in the property. The type of mortgage insurance you pay depends largely on the loan program.
PMI — Private Mortgage Insurance
PMI is commonly associated with conventional mortgages when the borrower has less than 20% equity. Depending on the loan structure and applicable requirements, PMI may eventually be removed once sufficient equity is established.
MIP — Mortgage Insurance Premium
FHA loans generally require mortgage insurance premiums, which can include an upfront premium and an annual premium paid over time. The duration of FHA mortgage insurance depends on factors such as the loan-to-value ratio and the applicable FHA rules.
Why Does It Matter?
Mortgage insurance affects your monthly payment and overall cost of borrowing. A lower down payment may mean higher mortgage insurance costs, but it can also allow you to purchase sooner.
Don't automatically assume that avoiding mortgage insurance is always the best strategy. Compare the down payment, monthly payment, mortgage insurance, and long-term cost together.
This information is provided for general educational purposes only and is not a commitment to lend, an offer of credit, or individualized financial advice. Loan programs, eligibility requirements, interest rates, terms, fees, mortgage insurance, and guidelines are subject to change and may vary by borrower, property, lender, and loan program. All loans are subject to applicable underwriting, credit, income, asset, and property requirements.