What is Private Mortgage Insurance or PMI?
Private Mortgage Insurance (PMI) is a policy provided by private mortgage insurers to protect lenders against loss if a borrower defaults. The benefit of private mortgage insurance to the borrower is that it allows a borrower to purchase a home without putting down a 20% down payment.
PMI should not be mistaken for MIP, or Mortgage Insurance Premiums, purchased from the government for FHA mortgage loans.
What’s the Difference Between MIP & PMI?
Although the concept of insurance protection is similar, there are distinct differences between private mortgage insurance (PMI) and FHA mortgage insurance premiums (MIP) that should be considered when deciding which loan program suits your financial needs.
PMI is typically is available in a variety of premium plan structures and offers payment options that can usually be tailored to the borrower’s needs. There are a number of private mortgage insurance providers and each structure their offerings a bit differently.
MIP is the government-administered mortgage insurance program that has certain restrictions and has undergone a number of changes recently.
Major Differences Between PMI & MIP
Major differences between these insurance programs include:
- Only a monthly premium is required with PMI while MIP requires both an upfront MIP (UFMIP) and a monthly premium.
- PMI can be canceled after a stated LTV is achieved and favorable payment history has been established, while MIP is paid for the life of the loan.