Understanding the Basics: PMI vs. MIP
If you’re buying a home with less than 20% down, you’ll likely face mortgage insurance, but the type you pay depends on your loan. With a conventional loan, you’ll pay private mortgage insurance (PMI). If you choose an FHA loan, you’ll pay a mortgage insurance premium (MIP).
Both options protect lenders from default, but the costs, cancellation rules, and duration differ significantly. Understanding the difference between PMI and MIP can help you pick the best mortgage for your financial goals.
What Is PMI (Private Mortgage Insurance)?
What is PMI mortgage insurance? It’s required on conventional loans when your down payment is under 20%. PMI is typically paid monthly but may also be paid upfront or included in your loan’s interest rate.
Key Features of PMI:
- Loan Type: Conventional
- Down Payment: Less than 20%
- Typical Cost: 0.5%–1.86% annually (based on credit score, down payment, loan type)
- Cancellation: Eligible at 20% equity, automatic at 22%
- Payment Structure: Monthly, upfront (Single Premium), or Lender-Paid PMI (LPMI)
Want to estimate your payment? Many lenders offer a PMI cost calculator to help you compare options and evaluate affordability.
What Is MIP (Mortgage Insurance Premium)?
FHA mortgage insurance works differently than PMI. MIP is required on all FHA loans, regardless of down payment. It includes both a one-time FHA upfront MIP and an annual premium paid monthly.
Key Features of MIP:
- Loan Type: FHA-backed
- Down Payment: As low as 3.5%
- Upfront Mortgage Insurance Premium: 1.75% of loan amount (paid at closing or rolled into loan)
- Annual MIP:
- For loans ≤ $726,200:
- LTV ≤ 90%: 0.50%
- LTV > 90%: 0.55%
- For loans > $726,200:
- LTV ≤ 90%: 0.70%
- LTV > 95%: 0.75%
- For loans ≤ $726,200:
- Cancellation: After 11 years with 10%+ down; otherwise, lasts for life
- Payment Structure: Upfront + monthly (billed as part of monthly mortgage insurance)
PMI vs. MIP: Side-by-Side Comparison
| Feature | PMI (Conventional) | MIP (FHA Loan) |
|---|---|---|
| Required When? | Down payment < 20% | All FHA loans |
| Upfront Cost | Not required (except single premium) | 1.75% of loan amount (UFMIP) |
| Monthly Cost | 0.5%–1.86% annually | 0.15%–0.75% annually |
| Cancelable? | Yes, at 20% equity | After 11 years (if 10%+ down) |
| Lasts Life of Loan? | No | Often, yes |
| Based On? | Credit, down payment, LTV | Loan size, term, LTV |
How to Remove PMI and MIP
How to remove PMI:
- Request removal once your loan hits 80% of your home’s original value.
- Your lender might require a home appraisal to confirm current value.
- PMI is automatically canceled at 78% loan-to-value.
FHA MIP removal:
- Requires 10% or more down and 11 years of payments.
- Loans with less than 10% down keep MIP for the full term.
- FHA MIP removal can also be achieved by refinancing into a conventional loan once you’ve built 20% equity.
Real-World Example
Say you buy a $300,000 home with 5% down on a conventional loan. You’ll likely pay around 0.8% in PMI—roughly $190/month—until you hit 20% equity.
Now consider the same home with an FHA loan and 3.5% down. You’d pay a FHA upfront MIP of $5,062.50 and a monthly MIP of about $130. If you put less than 10% down, MIP stays for the life of the loan.
What Affects PMI and MIP Costs?
- Loan Term Length
Shorter loans (like 15-year terms) often come with lower insurance costs due to reduced risk. - Occupancy Type
Investment and second homes have higher PMI. FHA loans apply only to primary residences, helping standardize FHA insurance vs PMI pricing. - Loan Purpose
Refinance loans may or may not require mortgage insurance depending on equity. FHA streamline refinances always include MIP unless switching to conventional. - State and Market Trends
High-cost markets may influence mortgage insurance types and pricing. - Loan Programs
Programs like HomeReady® or Home Possible® offer reduced PMI for qualifying borrowers, while MIP costs are set federally.
FAQs: PMI vs. MIP
Which is more expensive—PMI or MIP?
It depends. PMI may be cheaper for borrowers with excellent credit, while MIP is fixed across credit tiers.
Can I avoid mortgage insurance altogether?
Yes—put down 20% on a conventional loan. FHA loans always require MIP.
Should I refinance to get rid of MIP?
If you qualify for a conventional loan and have 20% equity, refinancing may eliminate MIP altogether.
What is the main difference between PMI and MIP?
PMI is for conventional loans and usually cancelable. MIP applies to FHA loans and often lasts longer.
Is PMI insurance explained during the mortgage process?
Yes. Lenders provide full details and costs as part of your Loan Estimate and Closing Disclosure.
The Bottom Line
In the PMI vs MIP debate, both serve the same purpose—protecting lenders when buyers put down less than 20%. But the details matter.
PMI is more flexible and cancelable. MIP stays longer but comes with the accessibility of an FHA loan. Whether you’re comparing FHA vs conventional options or reviewing insurance costs, understanding your mortgage insurance premium obligations can save you money over time.
Need help evaluating your options? Contact a Revix advisor for personalized advice and a full breakdown of your mortgage insurance types.
