Key Takeaways
- Mortgage insurance premium (MIP) and private mortgage insurance (PMI) are two types of mortgage insurance that protect the lender.
- PMI and MIP apply to different loan types, are priced differently and have different cancellation rules.
- PMI is generally required for conventional loans when the down payment is less than 20%.
- MIP is mortgage insurance required on all Federal Housing Administration (FHA) loans.
- Both types of mortgage insurance are a part of your monthly payment and can change the true cost of financing a home far more than many borrowers expect.
If you’re looking to buy a home but don’t have a lot of cash available for a large down payment, you may be looking into FHA loans as well as conventional loans with low down payment options. FHA loans can allow down payments as low as 3.5%, and some conventional loans allow down payments as low as 3%. Either way, you’ll need to pay for mortgage insurance–either MIP or PMI. It’s important to understand how these mortgage insurance options will impact your monthly payment, and how long you’ll have to pay the insurance for.
If you have more questions, reach out to Newrez today. Our loan experts will be glad to discuss the mortgage process with you.
Click to navigate:
1. What is PMI?
2. What is MIP?
3. How FHA MIP is Charged
4. The Bottom Line: MIP vs. PMI
5. FAQs
Compare PMI and MIP
| PMI | MIP | |
| When is it required? | When the down payment is less than 20%. | On all FHA loans. |
| Loan type |
Conventional loans. |
FHA loans. |
| Payment frequency |
Monthly payment. |
Upfront cost paid with closing costs, and a monthly payment. |
| Can you remove it? | Yes, once the principal balance of your mortgage reaches 80% of the home’s original value or you have 20% home equity, depending on the lender. | Yes, if you made a down payment of 10% or more, the lender must stop MIP after 11 years. If you made a down payment of less than 10%, you would have to pay MIP for the entire life of the loan or refinance.* |
| Typical cost | Typically between 0.19% to 1.86% of your initial mortgage loan per year, depending on loan-to-value ratio, loan-level pricing adjustments, and the borrower’s credit profile.1 |
An upfront fee of 1.75% of the base loan amount, plus 0.15% to 0.75% of the base loan. |
*This applies to any FHA loan originated after June 3, 2013. Different rules may apply to borrowers who took out loans before then.2
What is PMI?
PMI is the mortgage insurance commonly tied to conventional loans when the borrower puts down less than 20%. Unlike FHA mortgage insurance, PMI is arranged through a private insurer, and the cost is generally more personalized to the loan file. Credit score, loan-to-value ratio, loan size, coverage level, and payment structure can all affect the price. PMI rates vary by down payment amount and credit score, and PMI is generally cheaper than FHA mortgage insurance for borrowers with good credit.
A borrower comparing an FHA loan against a conventional loan should not stop at the interest rate. In many cases, the real decision hinges on the combined cost of rate plus mortgage insurance plus how long the insurance will last. For borrowers with good credit and a medium-sized down payment, FHA loans may be more expensive than conventional loans, while FHA could be the cheaper option for borrowers with lower credit scores or smaller down payments.
What is MIP?
MIP is the mortgage insurance attached to FHA loans. The FHA requires mortgage insurance on all FHA loans, and that cost comes in two pieces: an upfront mortgage insurance premium and an annual premium paid monthly as part of the mortgage payment. FHA mortgage insurance is not primarily driven by the borrower’s credit score the way conventional PMI often is.
For most standard FHA forward mortgages, HUD’s current schedule shows an upfront MIP of 1.75% of the base loan amount. The annual MIP depends on the size of your loan, your loan term, and your loan-to-value (LTV). A lower LTV means a lower MIP.
Annual MIP
| Loan Term | Base Loan Amount ≤ $726,000 |
Base Loan Amount > $726,000 |
| 15 years or less | 0.15% to 0.40% | 0.15% to 0.65% |
| Loan type | 0.50% to 0.55% | 0.7% to 0.75%3 |
How FHA MIP is Charged
For many borrowers, FHA MIP works like this:
- Upfront MIP: charged once at closing, often financed into the loan balance
- Annual MIP: divided into monthly installments and added to the monthly payment
- Duration: depends heavily on the original LTV and the down payment amount
Borrowers can often roll the upfront FHA premium into the mortgage rather than paying it fully out of pocket, but that increases the loan amount and may increase total cost over time.
The Bottom Line: MIP vs. PMI
If you’re choosing between MIP and PMI, you’ll want to consider your credit profile, down payment, and long-term plans. PMI is usually more flexible and easier to remove. MIP is more standardized and is typically more expensive in the long run if the borrower starts with a small down payment and never refinances the loan. FHA loans could still be the better starting point for borrowers with low credit, especially if they plan on refinancing after building equity. However, conventional financing may be a better option for borrowers with stronger credit, even if they only have the resources for a small down payment.
Want to learn more? Connect with Newrez today and one of our loan experts will be glad to discuss your options in detail.
Frequently Asked Questions
No. MIP is tied to FHA loans. PMI is tied to many conventional loans with less than 20% down.
No. Mortgage insurance protects the lender if the borrower defaults.
Yes. In many eligible cases, PMI can be requested for cancellation at 80% of original value, automatically terminates at 78% if the borrower is current, and may also end at the loan midpoint.
Sometimes, depending on your down payment. For FHA loans originated after June 3, 2013, lenders are required to remove MIP after 11 years if you made a down payment of at least 10%. If your down payment was less than 10%, MIP typically remains for the life of the loan, unless you refinance into a different mortgage.
Not always. FHA loans are often the cheaper option for borrowers with lower credit scores or smaller down payments, while conventional loans often look better for borrowers with good credit and medium down payments.
