PMI vs. MIP: Mortgage Insurance Explained
Mortgage insurance is one of those line items that surprises buyers — you didn't ask for it, but there it is on your statement. The good news: it's what lets you buy with less than 20% down, and on some loans you can shed it later. The trick is knowing which kind you have, because PMI and MIP play by very different rules.
Quick answer
PMI (private mortgage insurance) is on conventional loans and can be canceled once you reach about 20% equity. MIP (mortgage insurance premium) is on FHA loans and, on most of them today, stays for the life of the loan unless you refinance out of FHA. Both protect the lender — not you — and both let you buy with a smaller down payment. Which one you pay depends on your loan type, not your choice.
What you'll learn
- What mortgage insurance is and who it actually protects
- How PMI on conventional loans differs from MIP on FHA loans
- Roughly what each one costs each month
- The ways to remove or escape each type
What Mortgage Insurance Actually Does
First, the part nobody explains clearly: mortgage insurance does not protect you. It protects the lender if a loan with a small down payment goes unpaid. So why pay it? Because it's the trade-off that lets you buy now with 3% to 5% down instead of waiting years to save 20%. For most families, owning sooner — and building equity instead of paying rent — is worth a temporary insurance cost.
PMI on Conventional Loans
When you put less than 20% down on a conventional loan, you pay private mortgage insurance, or PMI. The amount depends on your down payment and credit, but it's a monthly add-on to your payment. The big advantage of PMI is that it doesn't last forever — once you've built enough equity, it comes off and your payment drops.
- You can request cancellation once you reach about 20% equity based on your original value.
- By law, the lender automatically removes it when you hit roughly 22% equity on schedule.
- Rising home values or extra principal payments can get you there faster.
- Stronger credit means a lower PMI rate, so it pays to clean up your credit first.
Because PMI is cancelable, a conventional loan often costs less over time than FHA for borrowers with solid credit.
MIP on FHA Loans
FHA loans carry their own version called the mortgage insurance premium, or MIP, and it works differently in two ways. First, there's an upfront premium added to your loan at closing. Second, there's an annual premium split into your monthly payment. The catch most people don't expect: on the majority of FHA loans today, that annual MIP stays for the life of the loan if you put down less than 10%. It doesn't fall off at 20% equity the way PMI does.
How to Get Rid of Each One
Removing mortgage insurance depends entirely on which type you have. For PMI, it's straightforward — reach the equity mark and request removal, or let it cancel automatically. For FHA MIP, the usual path is to refinance into a conventional loan once you have enough equity and credit to qualify. That single move can end the insurance for good and sometimes lowers your rate too.
If you're not sure how much equity you have, that's the first thing to check — it decides which option is even on the table.
Which Path Fits You
There's no universal winner. FHA's flexible credit and low down payment make it the right start for many first-time and credit-building buyers, even with life-of-loan MIP. Conventional with cancelable PMI tends to cost less long term if your credit is strong. The smart play is to look at both side by side with your real numbers. We're glad to run that comparison for you — free, in English or Spanish, with no obligation — so you can see which one actually saves you money.
Key takeaways
- PMI is conventional; MIP is FHA — the rules are not the same.
- Conventional PMI cancels at about 20% equity; FHA MIP usually doesn't.
- Both protect the lender, but both let you buy with less money down.
- Refinancing from FHA to conventional is the common way to drop MIP.
Common questions
What's the real difference between PMI and MIP?
The practical difference when you're choosing a loan: conventional with PMI lets you cancel the insurance once you've built about 20% equity — at that point you keep the loan and drop the cost. FHA with MIP usually doesn't; you'd have to refinance out of FHA entirely to get rid of it. That long-tail cost is a real reason some buyers with strong enough credit choose conventional over FHA, even at a slightly higher rate.
Does mortgage insurance protect me if I can't pay?
No. It protects the lender against loss on a low-down-payment loan. What it does for you is make buying possible without 20% down, so you can start building equity sooner.
How do I cancel PMI?
Once you reach about 20% equity based on your original value, you can ask your servicer to cancel it. It also comes off automatically at roughly 22% equity on your normal schedule. Extra principal payments or rising values speed that up.
Can I remove FHA MIP without refinancing?
Usually not, if you put down less than 10%. For most current FHA loans the annual MIP stays for the life of the loan, so the common way to end it is refinancing into a conventional loan once you qualify.
Is it worth refinancing just to drop MIP?
Sometimes. It depends on your rate, your equity, and the closing costs. If a conventional refinance lowers both your rate and your insurance, the savings can be real. We can run the break-even math with your numbers before you decide.