Lender Paid vs Borrower Paid Mortgage Insurance

Certain loans when you put down less than 20% you have to have mortgage insurance on the loan.  You have some options when it comes to how you pay for the mortgage insurance and the 2 I wanted to go over today are Lender Paid Mortgage Insurance (LPMI) and Borrower Paid Mortgage Insurance (BPMI).

BPMI is when you pay the mortgage insurance each and every month until you meet a certain loan to value.  You can get it removed on a primary residence once you have 20% to 25% equity in the property depending on how you achieve that equity i.e. through paying down the balance or appreciation.  Here is a link from our favorite mortgage insurer MGIC on cancelling your PMI – https://mgic.com/ordering-mi/ordering-mi.html#cancelling-mi

LPMI is when you don’t pay a mortgage insurance but just like anything in life, nothing is free.  It results in a higher interest rate but can result in a lower overall payment compared to BPMI.  The downside is you are stuck with that higher rate for the life of the loan where with the BPMI you can get it removed and have a lower payment down the road.

Everyone’s circumstances are different and it depends on how long you plan on holding the loan.  The average time someone holds a loan is 5 to 10 years.