Conventional Loans And Mortgage Insurance

PMI is a type of mortgage insurance unique to conventional loans. Like mortgage insurance premiums do for FHA loans, PMI protects the lender if the borrower defaults on the loan.

You’ll have to pay PMI as part of your mortgage payment if your down payment was less than 20% of the home’s value. However, you can request to remove PMI when you have 20% equity in the home. Once you’ve reached 22% home equity, PMI is often removed from your mortgage payment automatically.

Unlike mortgage insurance for FHA loans, PMI offers different payment options. Borrower-paid PMI, or BPMI, does not require an upfront cost, and depending on the lender, you can request to have it canceled once you’ve reached 20% equity in your home. In most cases, it’s automatically removed once you’ve reached 22% equity.

Lender-paid PMI, or LPMI, is paid for you by your lender. The lender will raise your mortgage interest rate in order to incorporate the insurance payment they make on your behalf. This option may result in lower payments but is typically not cheaper over the life of the loan. LPMI cannot be canceled because it’s built into your interest rate.