MIP vs. PMI: Mortgage Insurance Explained for Homebuyers

Nobody tells you this clearly enough when you're buying a house: mortgage insurance protects the bank, not you. If you default, the insurance pays the lender. You pay the premium. It exists entirely to let lenders approve loans with small down payments while limiting their own risk.

That's not a reason to avoid it — sometimes it's the right trade. But you should know what you're paying for, how much it costs, and when you can stop paying it. Because one type of mortgage insurance can stay on your loan forever, and a lot of buyers don't find that out until after they've closed.

PMI — The One That Goes Away

PMI (Private Mortgage Insurance) applies to conventional loans when you put down less than 20%. It's provided by private insurance companies — Genworth, MGIC, Radian, and others — not the government.

Cost: typically 0.5–1.5% of the loan balance annually, divided into monthly payments. On a $300,000 loan, that's $125–$375/month. Your exact rate depends on credit score, down payment size, and the insurer.

The critical thing about PMI: it cancels. Once your loan balance drops to 80% of the original purchase price — through your regular payments — you can request removal. At 22% equity based on the original amortization schedule, the lender is legally required to cancel it automatically under the Homeowners Protection Act. You don't have to refinance. You don't have to do anything dramatic. You hit the threshold, you request cancellation, it's gone.

You can also request cancellation early if appreciation has pushed your equity above 20%. Many lenders allow this with a new appraisal — if the home's current value gives you 20%+ equity, PMI comes off even if you haven't paid down that far based on the original price.

MIP — The One That Might Not

MIP (Mortgage Insurance Premium) applies to FHA loans. It's charged by the federal government, not private insurers, and it has two parts:

• Upfront MIP: 1.75% of the loan amount, charged at closing. Most borrowers roll this into the loan rather than paying it out of pocket, which means it's financed and you pay interest on it for the life of the loan.
• Annual MIP: 0.55–1.05% depending on your loan-to-value and loan term, paid monthly.

Here's the part that catches people off guard. If you put down less than 10% on an FHA loan — which is most FHA borrowers, since the 3.5% minimum down is the main reason people choose FHA — the annual MIP stays for the entire life of the loan. There is no cancellation. You make payments for 30 years and the insurance premium is there on every single one of them.

If you put down 10% or more, MIP drops after 11 years. Still a long runway, but at least there's an end date.

On a $300,000 FHA loan with 3.5% down: upfront MIP of $5,775 rolled into the loan, plus roughly $138–$263/month in annual MIP for 30 years. That's $49,000–$94,000 in mortgage insurance over the life of the loan, on top of interest.

Which One Is Actually Cheaper?

It depends on your credit score and how long you keep the loan.

For a buyer with good credit putting down 5%, conventional + PMI is almost always cheaper long-term than FHA + MIP. The PMI rate on a 740 credit score with 5% down might be 0.5–0.7% annually — and it cancels once you hit 20% equity. FHA MIP runs 0.55–1.05% on top of the 1.75% upfront, and it doesn't cancel. You're paying for something that could disappear vs. something that won't.

Where FHA wins: lower credit scores. For a side-by-side look at all loan options including FHA, see our first-time homebuyer mortgage guide. Conventional PMI rates for a 620 credit score can be punishing — 1.5%+ annually. FHA's MIP is the same regardless of credit score. For buyers who wouldn't qualify for conventional financing, or who can only qualify at rates that make conventional PMI unaffordable, FHA makes sense. Just go in understanding the trade you're making.

How to Get Out of Mortgage Insurance

For conventional loans with PMI:

• Hit 80% LTV on your original purchase price and request cancellation in writing
• Get a new appraisal if appreciation has pushed your equity to 20%+ — many lenders will cancel based on current value
• Lenders must automatically cancel at 22% equity per original amortization schedule

For FHA loans with lifetime MIP, the only clean exit is refinancing into a conventional loan. Once you have 20% equity — through payments, appreciation, or both — refinance out of FHA, and you're no longer subject to MIP. This requires a new appraisal, closing costs, and qualifying for a conventional loan, but if your credit has improved and your equity is there, it's worth running the math.

The cleanest way to avoid mortgage insurance entirely: put 20% down on a conventional loan. Or use an 80/10/10 piggyback structure — a first mortgage at 80% LTV, a second mortgage covering 10%, and 10% cash down — which keeps you below the PMI threshold while letting you hold more of your cash.