PMI vs MIP: What Is the Difference?

PMI and MIP both protect the lender if you default. Both cost you money. But they work differently, and understanding the difference can save you thousands over the life of your loan.

PMI: Private Mortgage Insurance

PMI applies to conventional loans with less than 20% down. It is priced by private insurance companies. Your lender arranges it, and you pay the premium.

• Monthly PMI: $50 to $300 per month depending on loan size and credit score
• Single-premium PMI: One upfront payment (can be lender-paid in exchange for a higher rate)
• Borrower-paid vs lender-paid: You can trade PMI for a slightly higher interest rate

MIP: Mortgage Insurance Premium

MIP is the FHA version. It works differently:

• Upfront MIP (UFMIP): 1.75% of the loan amount, paid at closing or financed into the loan
• Annual MIP: 0.45% to 1.05% of the loan balance, paid in monthly installments
• Duration: MIP lasts the life of the loan if you put less than 10% down. With 10% or more, it drops off after 11 years.

Key Differences

• PMI can be removed once you reach 20% equity. MIP on most FHA loans stays for the full loan term unless you put 10%+ down.
• PMI premiums vary by credit score. MIP rates are fixed by the FHA regardless of credit.
• PMI is tax-deductible for some borrowers. MIP is generally not (though this changes with tax laws).

Which One Is Better?

For most buyers, conventional with PMI is better because you can cancel the PMI once you build equity. FHA with MIP is better if you have a lower credit score or need the 3.5% down payment. Refinancing out of FHA to conventional is a common strategy once you have 20% equity.