Mortgage Insurance Calculator — PMI vs FHA MIP Costs

PMI vs MIP: Key Differences

Private mortgage insurance (PMI) and FHA mortgage insurance premiums (MIP) both protect the lender when a borrower puts down less than 20%, but they work differently in several important ways. PMI applies only to conventional loans and is provided by private insurance companies such as MGIC, Radian, and Essent. MIP is required on all FHA loans regardless of down payment and is paid directly to the Federal Housing Administration. The most critical difference is cancellability: conventional PMI automatically terminates when your loan-to-value ratio reaches 78% based on the original property value, per the Homeowners Protection Act of 1998. FHA MIP, by contrast, remains for the life of the loan if you put down less than 10%, or for 11 years if your down payment is 10% or more. PMI costs are also credit-score dependent, meaning borrowers with excellent credit pay substantially less than those with lower scores, while FHA MIP rates are uniform regardless of credit score.

How PMI Is Calculated

Conventional PMI rates are determined by a matrix that considers two primary factors: your loan-to-value ratio (LTV) and your credit score. Borrowers with a 760+ credit score and 90% LTV might pay as little as 0.30% of the loan amount annually, while a borrower with a 660 credit score at 95% LTV could pay 2.20% per year. For a $360,000 loan (90% LTV on a $400,000 home), PMI could range from $90 to $660 per month depending on creditworthiness. Most PMI is paid as a monthly premium added to your mortgage payment, but borrowers can also choose single-premium PMI (paid upfront at closing) or split-premium PMI (a combination of upfront and monthly). According to Freddie Mac, the typical conventional borrower with good credit pays between 0.35% and 0.65% of the loan amount annually for PMI. Your lender will obtain PMI quotes from multiple insurers and the rate is locked at the time of loan origination, remaining constant until the insurance is canceled.

FHA Upfront and Annual MIP Rates

FHA loans carry two separate mortgage insurance charges. The upfront mortgage insurance premium (UFMIP) is 1.75% of the base loan amount, charged at closing and typically financed into the loan balance. On a $386,000 base loan, this adds $6,755 to your total loan amount. The annual MIP is charged monthly and depends on your loan term, LTV, and loan amount. For a 30-year loan with less than 5% down, the annual MIP rate is 0.55% of the outstanding loan balance; with 5% or more down, it drops to 0.50%. On that same $386,000 loan, this translates to approximately $177 per month. Unlike conventional PMI, FHA MIP rates are set by the U.S. Department of Housing and Urban Development (HUD) and do not vary by credit score. For 15-year FHA loans with LTV at or below 90%, the annual MIP rate can be as low as 0.15%, making shorter-term FHA loans significantly cheaper from an insurance standpoint. The combination of upfront and annual MIP means FHA mortgage insurance is often more expensive than conventional PMI over the life of the loan, particularly for borrowers with strong credit profiles.

When Mortgage Insurance Is Removed

Removing mortgage insurance as soon as possible can save thousands of dollars over the life of your loan. For conventional loans, the Homeowners Protection Act provides two automatic triggers: PMI must be terminated when your loan balance reaches 78% of the original home value based on the amortization schedule, and you can request cancellation once you reach 80% LTV. You may also request early cancellation if your home has appreciated and a new appraisal confirms the LTV is at or below 80%, though lender policies on appraisal-based cancellation vary. For FHA loans originated after June 3, 2013, MIP cancellation rules are stricter. If you put down less than 10%, MIP stays for the entire loan term. If you put down 10% or more, MIP is removed after 11 years. The only way to eliminate FHA MIP early is to refinance into a conventional loan once you have at least 20% equity. According to analysis from the Urban Institute's Housing Finance Policy Center, many FHA borrowers could save money by refinancing to conventional once they reach 80% LTV, even accounting for refinance closing costs.

Lender-Paid PMI (LPMI) Explained

Lender-paid mortgage insurance (LPMI) is an alternative to borrower-paid PMI where the lender covers the mortgage insurance cost in exchange for a higher interest rate on the loan. Instead of paying a separate monthly PMI premium, you accept a rate that is typically 0.25% to 0.50% higher than you would otherwise receive. The advantage of LPMI is a lower total monthly payment compared to having a separate PMI charge, and the higher interest rate may be tax-deductible as mortgage interest (consult a tax professional). The disadvantage is that LPMI cannot be removed since the higher rate is built into the loan for its entire term, whereas borrower-paid PMI drops off at 78% to 80% LTV. LPMI tends to benefit borrowers who plan to sell or refinance within five to seven years, before they would naturally reach the PMI cancellation threshold. For borrowers who plan to stay in the home long-term, borrower-paid PMI that eventually cancels is usually the more cost-effective option. Your lender can provide comparison scenarios showing the total cost of each approach over various time horizons, which is the best way to determine which structure suits your financial plans.