Lender-paid mortgage insurance (LPMI)

• LPMI usually results in lower monthly payments than borrower-paid mortgage insurance, but also carries a higher interest rate.
• It remains for the life of the loan, so it can't be canceled unless the loan is refinanced or paid off.
• Over time, you may end up paying more with LPMI.

Borrower-paid mortgage insurance (BPMI)

• BPMI results in higher monthly payments at first but will be canceled at a certain point.
• Once BPMI is removed from the loan, your monthly payments will be lower than with LPMI.

TIP: You can pay additional principal to get rid of BPMI even faster.

Example: Mortgage Insurance – Lender or Borrower paid comparison

• Borrower A and Borrower B buy identical houses for $250,000.
• Each makes a down payment of $25,000 and borrows $225,000.
• Both must get private mortgage insurance, but they select different types.
• Borrower A gets regular, borrower-paid mortgage insurance, which is dropped automatically when the loan balance falls below 78 percent loan-to-value (in this case, it takes 7 years and 2 months).
• Borrower B chooses the lender-paid option.