What's the difference between PMI and MIP, and why do people hate MIP?

What's the difference between PMI and MIP?

You want to know the difference between PMI and MIP, and why MIP gets a bad reputation among home buyers.

PMI (private mortgage insurance) applies to conventional loans when you put down less than 20%. You pay PMI until you reach 20% equity in your home, either through payments or home value increases. Once you hit that threshold, PMI automatically cancels or you can request cancellation. MIP (mortgage insurance premium) applies to FHA loans regardless of your down payment amount. MIP has two parts: an upfront premium (typically 1.75% of the loan amount) that gets rolled into your loan, plus an annual premium paid monthly.

The frustration with MIP comes from how long it stays on your loan. If you put down less than 10% on an FHA loan, MIP stays for the entire loan term—typically 30 years. Even with 10% or more down, MIP remains for 11 years minimum. Unlike PMI, MIP doesn't automatically cancel when you reach 20% equity.

Check your loan documents to see which type applies to your loan and the specific terms. Many people refinance out of FHA loans into conventional loans once they have enough equity to avoid both MIP and PMI. Share your equity situation with your lender and they can walk you through refinancing options.