Routing # 256078446
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What Is Mortgage Insurance?
What you'll learn: What mortgage insurance covers, whether it's required, and how to get rid of it
EXPECTED READ TIME: 5 MINUTES
May 19, 2023
It can be challenging to put down the traditional 20 percent down payment on a home purchase. Fortunately, there are mortgage options available today that can allow you to get into a home for much less up front. Mortgage insurance helps make this possible. But what does mortgage insurance protect? Is it required? What’s private mortgage insurance vs. federal mortgage insurance? Read on and learn the answers to common questions.
What does mortgage insurance cover?
Insurance for mortgages was developed to assist in making homeownership possible for borrowers with less than a 20 percent down payment. Unlike car, life, or homeowners insurance, which protect your own assets, mortgage insurance protects the lender. It provides coverage to a lender if a borrower falls behind on payments and defaults on a loan.
Although mortgage insurance increases the cost of your loan, it allows you to qualify for a mortgage you may not have otherwise.
What is PMI and MIP?
The two most common types of mortgage insurance are private mortgage insurance (PMI) and mortgage insurance premium (MIP). Yours will depend on your loan type.
Private mortgage insurance (PMI)
PMI is the type of mortgage insurance used with conventional loans that have a down payment of less than 20 percent. It is typically paid as a monthly fee.
How much does PMI cost per month? Here’s a sample PMI range on a $500,000 home loan:
PMI | Monthly | Annual |
0.5% | $208 | $2,500 |
1% | $417 | $5,000 |
There are various ranges for PMI, and different factors are taken into account such as loan-to-value (LTV). It’s best to talk to your lender to understand how much your PMI might be. Some lenders offer PMI as an up-front payment instead of monthly payments over time.
MIP is required with every FHA loan, even if you place more than a 20 percent down payment. It includes an up-front mortgage insurance premium (UFMIP) as well as an annual premium that’s paid monthly.
| Up-Front Mortgage | FHA Monthly Insurance |
How It’s | Closing cost or rolled into the | Monthly installments |
Amount | 1.75% of loan amount | 0.45% – 1.05% of the loan |
For example: With a $500,000 home loan, you’d pay $8,750 up front and $188 to $438 per month.
Can you ever stop paying mortgage insurance?
Another important distinction between PMI and MIP is how it can be eliminated.
Eliminating PMI
To get rid of PMI, you must have at least 20 percent equity in your home. This can be achieved by making regular mortgage payments or paying down the principal more aggressively. It can also help if your home value has increased with a booming economy or by making upgrades. You’ll likely need a new appraisal to show the current value of your home exceeds 20 percent of what you owe.
According to U.S. Mortgage Insurers, people paying PMI will typically make monthly PMI payments for an average of five and a half years. Once you have equity that exceeds 20 percent of the original appraisal price, you can request to cancel PMI. It’s recommended to request a written copy of the cancellation to keep for your records.
Getting rid of MIP
With MIP, you pay the insurance premium for at least 11 years. For an FHA loan with a down payment of under 10 percent, MIP is paid for the loan's entire life. With a 10 percent down payment or more, the MIP is paid for the first 11 years.
Down Payment | MIP Length |
Under 10% | Life of the Loan |
10% and higher | 11 Years |
Another way to eliminate mortgage insurance – either PMI or MIP – is to refinance your mortgage completely. Of course, the same rules apply in your new mortgage. With a conventional loan, you'll need at least 20 percent equity or down payment. Refinancing can be a great option if interest rates have dropped and your home value has increased.
Although it’s an added cost to your loan, mortgage insurance may be the key to making the home of your dreams a reality. Talk to a lender about the best option for you.
Wondering how much home you can afford? Run your numbers in the free mortgage affordability calculator.
SIMILAR ARTICLES
FHA vs. Conventional Private Mortgage Insurance | PenFed Credit Union
Understand private mortgage insurance (PMI) by answering these questions: How much is PMI? Do conventional and FHA loans have PMI? How can you get rid of PMI?
About FHA Mortgage Insurance Premium | PenFed Credit Union
Get your questions about MIP answered, including how to remove it, how much it costs, MIP rates, tax-deductibility, and more.
Cancelling PMI: How to Know When You Qualify | PenFed Credit Union
PenFed offers the option to automatically remove your PMI once your mortgage loan reaches a certain value. Here is a look into the details and conditions to receive this removal.
What Will a Mortgage Cost You? | PenFed Credit Union
There are a lot of costs involved with a mortgage. Learn what they are, what will affect them, and what to keep in mind when you shop for a new mortgage.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
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