When you’re preparing to buy a home, understanding the costs beyond your down payment is essential. Two terms you’ll likely encounter are PMI vs MIP, which refer to different types of mortgage insurance. Although they serve a similar purpose, they apply to different loan programs and follow very different rules. In this guide, we’ll break down the differences between PMI and MIP so you can make a more informed mortgage decision.
This guide explains the key differences between PMI and MIP, how each one works, when lenders require you to pay them, and how they affect your loan over time.
What Is Mortgage Insurance?
Mortgage insurance protects lenders in case you default on your home loan. It doesn’t insure you as the borrower — instead, it helps lenders reduce their risk when you make a smaller down payment.
PMI applies to conventional loans
MIP applies to FHA loans
If you’re unsure which loan type fits your situation, you can explore both using our FHA Mortgage Calculator or compare programs through Loan Compass.
What Is PMI (Private Mortgage Insurance)?
Most conventional loans require PMI when the down payment is below 20%. You can cancel it once your loan-to-value ratio (LTV) reaches 80%, or your lender will automatically remove it at 78%.
Key facts about PMI:
Typically costs between 0.2% and 2.0% of the loan annually.
Your credit score and down payment both influence the cost.
You can pay it monthly, upfront, or split the cost between both methods.
You can remove it without refinancing.
To learn more about PMI, see our article: What Is PMI? A Beginner’s Guide to Private Mortgage Insurance
What Is MIP (Mortgage Insurance Premium)?
The FHA program requires MIP on all of its loans, regardless of the down payment. Unlike PMI, MIP includes two parts:
Upfront MIP (UFMIP): Typically 1.75% of the loan, often rolled into your loan amount.
Annual MIP: Broken into monthly payments and added to your mortgage bill.
Key facts about MIP:
Required for the life of the loan if your down payment is under 10%.
With 10% or more down, MIP lasts for 11 years.
The loan amount and term determine the cost, while your credit score has no effect on the pricing.
Cancelling MIP usually requires a refinance into a conventional loan.
Want to understand more about FHA requirements? Check out our FHA Mortgage Guide.
PMI vs. MIP: A Side-by-Side Comparison
| Feature | PMI (Conventional Loans) | MIP (FHA Loans) |
|---|---|---|
| Required When | Down payment < 20% | All FHA loans |
| Upfront Fee | Optional or split | 1.75% (UFMIP) |
| Monthly Cost | Based on credit & LTV | Based on loan size & term |
| Cancelable? | Yes, at 80% LTV | Only with refinance (unless 10% down) |
| Affected by Credit Score? | Yes | No |
| Loan Type | Conventional | FHA |
If you’re not sure which loan program is better for your budget and goals, our Conventional Mortgage Guide can help you explore the benefits of each.
Which One Costs More?
It depends on your credit score and down payment. However, for borrowers with strong credit, PMI is often cheaper than MIP — especially when PMI can be removed after a few years.
But for those with lower credit scores, FHA loans with MIP may offer better interest rates, even though the mortgage insurance lasts longer.
Can You Avoid Mortgage Insurance?
There are several ways to avoid or reduce mortgage insurance:
PMI can be avoided by putting 20% down on a conventional loan
Some lenders offer Lender-Paid PMI (LPMI) in exchange for a slightly higher interest rate
FHA MIP cannot be avoided unless you’re refinancing into a different loan type
Some VA loans and USDA loans do not have traditional mortgage insurance, but may include fees (like the VA funding fee or USDA guarantee fee)
When Does PMI or MIP End?
| Mortgage Insurance Type | When It Ends |
|---|---|
| PMI | Cancel at 80% LTV or auto-cancel at 78% (conventional loans) |
| MIP | 11 years if 10%+ down, lifetime if less than 10% down (unless you refinance) |
FAQs: PMI vs MIP
What’s the difference between PMI and MIP?
PMI is private mortgage insurance required on conventional loans, while MIP is mortgage insurance required on FHA loans. PMI can be canceled; MIP typically cannot without refinancing.
Is PMI or MIP more expensive?
PMI is often cheaper for borrowers with strong credit. MIP costs the same regardless of credit score and includes an upfront and monthly component.
How do I get rid of MIP?
To remove MIP, you usually need to refinance from an FHA loan into a conventional loan after building equity and improving your credit.
Does MIP ever go away on its own?
Yes — only if you put 10% or more down on an FHA loan. In that case, the annual MIP drops off after 11 years.
Can I avoid PMI or MIP completely?
You can avoid PMI with a 20% down payment on a conventional loan. MIP is required on all FHA loans, but VA and USDA loans do not have traditional mortgage insurance.
Final Thoughts
Both PMI and MIP serve the same purpose — to protect lenders when loans are high-risk — but the rules and costs are different. If you’re choosing between a conventional or FHA loan, consider how long you plan to stay in the home, your credit score, and your ability to refinance later.
Explore your numbers using our FHA Mortgage Calculator, or read our FHA Mortgage Guide and Conventional Mortgage Guide to see which loan makes more sense for your situation.
