Mortgage Insurance (MI)

Types of Mortgage Insurance

Mortgage insurance takes different forms depending on the loan program:

• Private Mortgage Insurance (PMI): Required on conventional loans with loan-to-value ratios above . PMI is provided by private insurance companies and can be paid as a monthly premium, a single upfront premium, or a combination (split premium). Monthly PMI rates typically range from of the original loan amount annually, depending on credit score, LTV ratio, and coverage requirements.
• FHA Mortgage Insurance Premium (MIP): FHA loans require both an upfront mortgage insurance premium (UFMIP) of of the loan amount, financed into the loan, and an annual MIP paid monthly. Annual MIP rates for most FHA borrowers are of the average outstanding balance. On loans with original LTV above , MIP is required for the life of the loan.
• USDA Guarantee Fee: USDA loans charge an upfront guarantee fee of and an annual fee of , both functioning as mortgage insurance equivalents.

When Mortgage Insurance Can Be Removed

PMI on conventional loans can be cancelled once the borrower reaches equity based on the original property value, and must be automatically terminated when the loan balance reaches of the original value under the Homeowners Protection Act. FHA MIP on loans originated after with LTV above 90% cannot be cancelled and remains for the life of the loan; the only way to eliminate it is to refinance into a conventional loan. USDA annual fees also persist for the loan term.

Cost Impact

Mortgage insurance increases the borrower's monthly payment and total loan cost. Borrowers should evaluate whether a larger down payment to avoid MI, a lender-paid MI option with a higher rate, or an alternative loan program provides a lower total cost over their expected holding period.