Is There a Difference Between PMI and MIP?
Private Mortgage Insurance (PMI) vs. Mortgage Insurance Premiums (MIP)
While private mortgage insurance (PMI) generally exists to protect lenders for all types of home loans, MIP specifically protects FHA government-backed loans.
A MIP (Mortgage Insurance Premium) protects the lender regardless of the amount of the down payment. If the borrower pays 10% or more for their down payment, MIP can be canceled after 11 years. MIP consists of an upfront premium with a rate of 1.75% of the loan and an annual premium with a rate of 0.85%. Annual premiums tend to be lower for loan terms of 15 years or less and lower loan-to-value ratios.
Private Mortgage Insurance provides protection for conventional loans and is a guideline set by Freddie Mac and Fannie Mae and the majority of investors where the down payment is less than 20%. PMI is automatically removed once the loan balance has fallen to 78%.
Private Mortgage Insurance offers plenty of flexibility as it can be paid upfront at closing or it can be financed on a monthly basis. The PMI rate is dependent on the size of the loan and the loan-to-value ratio; typically the rates are in the range of 0.5% to 2% of the loan.