What Is PMI? What is MIP? Understanding The Different Types of Mortgage Insurance
What Is Mortgage Insurance Premium?
If you take out an FHA loan, you will be charged MIP, or mortgage insurance premium. If you put less than 10% down on your loan, you’ll pay a mortgage insurance premium for the entire life of your loan, whether you take out a 15 year or a 30 year mortgage. If you put 10% or over down on your home, you pay a mortgage insurance premium for 11 years.
Every year, you’ll have to pay between 0.45% and 1.05% of your loan amount, which gets folded into your monthly payments. Additionally, you’ll have to pay 1.75% of the loan amount up front in MIP. Depending on the price of your home and the amount you put down, this can really add up over time!
What is Private Mortgage Insurance?
As opposed to MIP, PMI is used in conventional home loans. If you put down less than 20% on your home, you will have to pay PMI for a certain amount of time. PMI is automatically canceled once your loan balance is at 78% of your purchase price, or you reach the midpoint of your loan, i.e. 15 years on a 30 year loan. You can also request that your PMI be canceled once you’ve reached 20% equity of your purchase price.
PMI usually costs between 0.5% and 1% of your loan amount annually, divided over your monthly mortgage payments. Just like MIP, PMI can really add up over time.
PMI vs MIP
PMI is only charged on conventional loans, and MIP is only charged on FHA loans. As we’ve covered, these two types of mortgage insurances are charged differently and will add up differently over time.
With all types of mortgage insurance, you pay less up front than someone who is putting 20% down on a home would pay. However, they often end up costing far more over time.
MIP and PMI are both forms of mortgage insurance, but they are utilized for different types of loans and have different payment amounts and structures.
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