Mortgage Insurance

PMI and MIP

Mortgage insurance is commonly added onto a mortgage loan to reduce a mortgage lender’s risk. It can bring lower interest rates and cause you not to have to pay so much in your down payment. There are two different types of mortgage insurance, Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP).

Private Mortgage Insurance is applied only to conventional loans in the case of a down payment less than 20%. PMI is generally worked in as an addition to your mortgage loan payment every month. But a PMI may be cancelled once you reach 20% in equity if you have a good payment history.

Another type of PMI is the single premium PMI where the insurance premium is paid in an upfront, single lump sum. This gets the insurance all taken care of in one swoop. And lastly is what is called the lender-paid PMI where the cost is put in the interest rate for the entire life of the loan.

Mortgage Insurance Premium on the other hand is insurance attached to any FHA loans. The FHA requires this insurance to reduce risk and allow for low down payments. MIP is usually assessed as both an upfront cost and monthly payments until a sufficient amount of the loan has been repaid.

Do You Need Mortgage Insurance?

Mortgage insurance is only needed when a home buyer is unable to put 20% down payment on a home loan. In these cases it is required by either the government or the mortgage lender until that 20% mark has been reached.