Buying a home is exciting, but it can also be confusing—especially when you hear terms like Private Mortgage Insurance (PMI). If you’re putting down less than 20% on a home, your lender will likely require PMI. But did you know there are different types of PMI?
In this article, we’ll break down the five main types of PMI, how they work, and which one might be best for you.
What Is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is a type of insurance that protects the lender (not you) if you stop making payments on your home loan. It’s usually required when your down payment is less than 20% of the home’s purchase price.
PMI doesn’t cover repairs or damages to your home—it only protects the lender. Once you’ve built enough equity (usually by paying down your loan to 78-80% of the home’s value), you can cancel PMI.
Now, let’s look at the five types of PMI available.
1. Borrower-Paid Mortgage Insurance (BPMI)
How It Works:
- You pay a monthly premium added to your mortgage payment.
- The cost depends on your loan amount, credit score, and down payment.
- Once you reach 20-22% equity, you can request to remove PMI.
Pros:
✅ Easy to cancel once you have enough equity.
✅ Lower upfront costs compared to other PMI types.
Cons:
❌ Increases your monthly payment.
❌ Doesn’t help reduce your loan balance.
Best For: Buyers who expect their home’s value to increase or plan to pay down their loan quickly.
2. Lender-Paid Mortgage Insurance (LPMI)
How It Works:
- The lender pays the PMI upfront or rolls it into your loan.
- Instead of a monthly PMI fee, you get a slightly higher interest rate.
- Unlike BPMI, you cannot cancel LPMI unless you refinance.
Pros:
✅ No separate monthly PMI payment.
✅ May qualify for a loan with a smaller down payment.
Cons:
❌ Higher interest rate over the life of the loan.
❌ Harder to remove unless you refinance.
Best For: Buyers who prefer lower monthly payments and don’t plan to refinance soon.
3. Single-Premium Mortgage Insurance (SPMI)
How It Works:
- You pay the entire PMI cost upfront at closing (either in cash or rolled into the loan).
- No monthly PMI payments afterward.
Pros:
✅ No extra monthly costs.
✅ May be tax-deductible (consult a tax advisor).
Cons:
❌ Large upfront payment (can be thousands of dollars).
❌ If you sell or refinance early, you may not get a refund.
Best For: Buyers who have extra cash at closing and want to avoid higher monthly payments.
4. Split-Premium Mortgage Insurance
How It Works:
- A mix of upfront and monthly payments.
- You pay part of the PMI at closing and the rest in monthly installments.
Pros:
✅ Lower initial cost than SPMI.
✅ Monthly payments are smaller than BPMI.
Cons:
❌ Still more expensive long-term than BPMI.
❌ Harder to cancel early.
Best For: Buyers who want to balance upfront and monthly costs.
5. Federal Housing Administration (FHA) Mortgage Insurance
Wait—Isn’t FHA Different from PMI?
Yes! But since FHA loans also require mortgage insurance (called MIP – Mortgage Insurance Premium), it’s worth comparing.
How It Works:
- Upfront MIP (1.75% of loan amount) paid at closing.
- Annual MIP (0.15%–0.75%) split into monthly payments.
- Unlike PMI, FHA MIP usually lasts the entire loan term unless you refinance.
Pros:
✅ Easier to qualify for (lower credit scores accepted).
✅ Low down payments (as little as 3.5%).
Cons:
❌ MIP lasts longer than PMI.
❌ More expensive over time.
Best For: First-time buyers or those with lower credit scores.
Which Type of PMI Is Best for You?
| Type of PMI | Upfront Cost | Monthly Cost | Can You Cancel? | Best For… |
|---|---|---|---|---|
| BPMI (Borrower-Paid) | Low/None | Yes | Yes (at 20% equity) | Buyers planning to build equity fast. |
| LPMI (Lender-Paid) | None | No (higher rate) | No (must refinance) | Buyers who want lower monthly payments. |
| SPMI (Single-Premium) | High | No | No | Buyers with extra cash at closing. |
| Split-Premium | Medium | Yes (reduced) | Depends on terms | Buyers balancing upfront & monthly costs. |
| FHA MIP | High (1.75%) | Yes | Only via refinance | Buyers with lower credit scores. |
How to Get Rid of PMI
- Reach 20% Equity – Once your loan balance is ≤80% of the home’s value, you can request PMI removal.
- Home Appreciation – If your home’s value increases, you may qualify for early cancellation.
- Refinance – Switching to a new loan without PMI (if you have enough equity).
- Automatic Termination – At 78% loan-to-value (LTV), PMI must be dropped (for BPMI).
Final Thoughts
PMI helps buyers purchase a home with a low down payment, but it comes at a cost. The best type depends on your financial situation, future plans, and how long you’ll keep the loan.
- Want lower monthly payments? → Consider LPMI.
- Have extra cash at closing? → SPMI might save money long-term.
- Planning to refinance soon? → BPMI is easier to cancel.
Always compare loan estimates and ask your lender about PMI options before committing.
