PMI and MIP Explained: What Every Home‑buyer Should Know
Key Takeaways
- PMI applies to conventional loans, MIP applies to FHA loans.
- PMI usually ends once you hit 20 % equity. MIP often lasts 11 years or the life of the loan.
- PMI costs depend on credit score/down payment; MIP has fixed upfront and monthly fees.
Understanding PMI vs MIP
If your lender makes you buy mortgage insurance, it helps protect the lender—not you. But there are two common types:
1. PMI (Private Mortgage Insurance) is for conventional loans when your down payment is under 20 %. It’s a monthly fee (often around 0.5 %–2 % per year of your loan) based on factors like down payment amount and credit score. You usually can cancel it once you reach 20 % equity—or it automatically cancels at 78 %, according to the Consumer Financial Protection Bureau. More details can be found at Investopedia.
2. MIP (Mortgage Insurance Premium) applies when you have a Federal Housing Administration (FHA) loan. You pay an upfront premium (about 1.75 % of your loan) plus a yearly or monthly premium that ranges roughly from 0.15 % to 0.75 %—based on loan size, down payment, and term. According to Freedom Mortgage, MIP stays in place for at least 11 years, or for the life of the loan if your starting loan-to-value was above 90 %.
PMI vs MIP: Side‑by‑Side Comparison
| Feature | PMI (Conventional Loan) | MIP (FHA Loan) |
|---|---|---|
| Who Requires It? | Lenders when you put less than 20% down | Mandatory for all FHA loans |
| Cost | 0.5%–2% of loan annually, based on credit/down payment | 1.75% upfront + 0.15%–0.75% annually |
| How Long It Lasts | Ends when equity reaches 20% (or automatically at 78%) | At least 11 years, sometimes life of loan |
| Can You Cancel? | Yes, by request or automatically at 78% loan‑to‑value | Usually no, unless you refinance to a conventional loan |
| Best Fit For | Borrowers with good credit who can build equity quickly | Borrowers with lower credit scores or smaller down payments |
Why the Difference Matters
PMI can be canceled once you build equity, which saves money sooner. MIP, on the other hand, often locks you in until you refinance to a conventional loan. Borrowers with lower credit scores or smaller down payments often start with FHA loans, but the long-term cost of MIP may be higher than PMI for those who could qualify for a conventional loan with good credit (FNBO).
Conclusion
If you took out a conventional loan with less than 20 % down, you’re probably paying PMI—and you can get rid of it once you’ve built enough equity. If you went with an FHA loan, you’re paying MIP—an upfront cost plus monthly premiums that stick around longer. Knowing which type you have helps you plan when to refinance or request cancellation so you don’t overpay.
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