The main difference between PMI and MIP, as we’ve already mentioned, is that PMI applies to conventional loans while MIP applies to FHA loans. But what other differences are there? Borrowers who put down less than 20% on a conventional loan are typically required to pay for mortgage insurance. However, once you reach 20% equity in your home, you can request that your lender or servicer remove PMI from your mortgage. Otherwise, PMI will be cancelled automatically once you reach 22% equity.Ability To Cancel
Cancellation of mortgage insurance works differently for FHA MIP. In general, MIP can’t be cancelled unless you made a larger-than-average down payment.
If you made a down payment of 10% or more on your FHA loan, you’ll pay annual MIP for 11 years. If your down payment amount was less than this, you can’t cancel MIP and will pay for mortgage insurance throughout the life of the loan.
To cancel MIP with a low down payment, you’ll likely need to refinance into a conventional loan once you reach 20% equity.
Upfront Cost
FHA loans come with both UFMIP and annual MIP.
UFMIP is equal to 1.75% of the loan amount and can either be paid in full at closing or financed into the loan amount.
By contrast, PMI is most often paid as an annual premium, with a portion of it included in each of your monthly mortgage payments. With this set up, you won’t have any upfront costs.
However, conventional loan borrowers may have the option to pay a single mortgage insurance premium in one lump sum at closing. In this case, you’d have an upfront mortgage insurance payment, and no annual costs.
Annual Costs
In addition to the 1.75% UFMIP, FHA loan borrowers will also pay between 0.15% – 0.75% each year for their annual MIP.
The exact amount your annual MIP will cost depends on your loan amount, term and down payment.
For example, a borrower with a 30-year, $300,000 FHA loan on which they made a 3.5% down payment would have an annual MIP rate of 0.55%.
Your PMI rate will be determined by your down payment amount and your creditworthiness. Borrowers with good credit scores tend to get better rates.
PMI rates typically range between 0.1% – 2%.
