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Since 2003, Dan Green has been a leading mortgage lender and respected industry authority. His unwavering commitment to first-time home buyers and home buyer education has established him as a trusted voice among his colleagues, his peers, and the media. Dan founded Homebuyer.com to expand the American Dream of Homeownership to all who want it. Read more about Dan Green.
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Private Mortgage Insurance (PMI) is required with conventional mortgage loans when you put down less than 20 percent on your home purchase. PMI helps lenders mitigate risk to offer low down payment purchase financing and is why three percent down payment programs exist.
PMI is traditionally paid monthly. While it adds a small premium to your monthly payments, it doesn’t last forever. You can cancel these premiums once you have enough equity in your home.
An alternative to monthly PMI payments is lender-paid private mortgage insurance (LPMI). With LPMI, your lender handles the mortgage insurance payments. However, this is not a no-cost option and typically results in a higher interest rate.
Read on to learn more about LPMI vs. PMI or apply to get pre-approved for your mortgage loan now.
Lender-paid private mortgage insurance (LPMI) is a type of PMI that is arranged and paid for by your mortgage lender. You’ll typically pay for this service with a higher interest rate.
With lender-paid private mortgage insurance, your mortgage insurance is either built into the closing costs or paid via a higher interest rate.
Lenders can negotiate lower premiums in bulk than a home buyer could on a single PMI policy, so LPMI is often cheaper than monthly PMI payments. However, LPMI policies cannot be canceled. You must pay off the loan or refinance to drop the insurance — and the higher rate it comes with.
LPMI often results in a lower monthly payment, though it may cost more in the long run.
Private mortgage insurance (PMI) is a type of insurance policy that mitigates the lender’s risk, allowing them to offer low down payment purchase financing.
Private mortgage insurance is a type of insurance required on conventional loans when you put down less than 20 percent on a home purchase. The home buyer pays the monthly premium, and the insurance reduces the lender’s risk to provide purchase financing with as little as 3 percent down.
There are four ways to pay for Private Mortgage Insurance. Your options will typically depend on what your lender offers.
Private Mortgage Insurance can be purchased as:
LPMI | PMI | |
How is this paid? | Via an increased interest rate | Via a monthly premium added to your mortgage payments |
Can this be canceled? | No | Yes, once your home equity reaches 20% |
Is this tax-deductible? | Yes, if you itemize your returns | Maybe (See below) |
Is the homeowner responsible for this payment? | Yes | Yes |
The most significant benefit of LPMI is that it can yield lower monthly payments than borrower-paid PMI.
LPMI can be a money-saver for short-term homeowners. If you plan to sell before you have 20 percent equity, you can take the short-term savings and not worry about longer-term costs.
Finally, LPMI is fully tax-deductible. LPMI is paid through a higher interest rate. And, when you itemize your returns, mortgage interest is deductible.
Borrower-paid PMI has its benefits, too. For one, it’s more accessible. Every lender has borrower-paid PMI options, but not all offer LPMI.
You can also cancel borrower-paid PMI once you reach 20 percent equity in your home. This is great if you plan to be in your home long-term, and you can look forward to a lower payment once you reach 20 percent equity.
Remember that your equity rises when home values rise, so you may reach 20 percent equity sooner than expected.
PMI may be tax deductible for homeowners in 2023. Consult with a tax professional regarding PMI and tax-deductibility.
It depends on how long you plan to stay in the home and what offerings your lender makes available. While LPMI typically gives the lower monthly payment, that’s not always the case. It’s best to work with your trusted mortgage expert to compare all available options.
PMI doesn’t lower your risk, so all policies would be the same for you. That said, LPMI can’t be cancelled. If you see being tied into PMI as a risk, then a borrower-paid PMI option would be a lower risk for you.
The cost of PMI varies based on your loan amount, mortgage down payment, credit, and more. According to Freddie Mac, the average is about $30 to $70 per month for every $100,000 you borrow.
Many types of mortgage loans require mortgage insurance:
PMI comes with many benefits and can help you buy your dream home with less money down. If you know you’ll only be in the home for a short while, LPMI can often be the best choice, but if you plan to stay for the long haul, borrower-paid PMI may be a better fit.
Always talk to your mortgage expert about your long-term goals and budget. They can give you all of your options and point you in the right direction. Home buyer education can also provide the tools you need to buy your first home with confidence.
Happy homebuying.
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Mortgage Rate Assumptions
The Homebuyer.com mortgage rates shown on this page are based on assumptions about you, your home, and the state where you plan to purchase. The rate shown is accurate as of , but please remember that mortgage rates change without notice based on mortgage bond market activity.
The Homebuyer.com mortgage rates shown on this page are based on assumptions about you, your home, and the state where you plan to purchase. The rate shown is accurate as of {{ formatDate(rates[0].createdAt) }}, but please remember that mortgage rates change without notice based on mortgage bond market activity.
Our mortgage rate assumptions may differ from those made by the other mortgage lenders in the comparison table. Your actual mortgage rate, APR, points, and monthly payment are unlikely to match the table above unless you match the description below:
You are a first-time buyer purchasing a single-family home to be your primary residence in any state other than New York, Hawaii, and Alaska. You have a credit score of 660 or higher. You are making a down payment of twenty percent and using a 30-year conventional fixed-rate mortgage. You earn a low-to-moderate household income relative to your area.
The information provided is for informational purposes only and should not be confused for a mortgage rate commitment or a mortgage loan approval.
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