How Much Does Mortgage Insurance Actually Cost?

Mortgage insurance protects lenders when borrowers make smaller down payments, mitigating the risk of loan default. While benefiting the lender, it adds a recurring expense for the borrower, increasing the overall cost of homeownership. Understanding its purpose helps homeowners manage this financial commitment.

Understanding Different Mortgage Insurance Costs

Various forms of mortgage insurance apply depending on the loan type, each with its own structure and cost implications. Private Mortgage Insurance (PMI) is required for conventional loans when the down payment is less than 20% of the home’s purchase price. It generally costs between 0.3% and 1.5% of the original loan amount annually, paid monthly.

FHA loans require a Mortgage Insurance Premium (MIP). This includes an Upfront Mortgage Insurance Premium (UFMIP), a one-time charge often 1.75% of the loan amount, paid at closing or financed into the loan. FHA loans also carry an Annual Mortgage Insurance Premium (Annual MIP), ranging from 0.45% to 1.05% of the outstanding loan balance, paid monthly.

VA loans require a VA Funding Fee instead of recurring premiums. This one-time upfront cost can be paid at closing or financed into the loan amount. The fee ranges from 1.25% to 3.3% of the loan amount, varying based on factors like veteran’s service status, down payment, and whether it’s a first-time or subsequent use of the VA loan benefit.

Key Factors Influencing Your Premiums

The specific amount a borrower pays for mortgage insurance is influenced by several individual financial factors and loan characteristics. The primary determinant is the loan-to-value (LTV) ratio, which compares the loan amount to the home’s value. A higher LTV, indicating a smaller down payment, results in higher mortgage insurance costs due to increased lender risk.

A borrower’s credit score also plays a significant role in determining mortgage insurance costs, especially for conventional loans. A higher credit score indicates lower default risk, often leading to lower Private Mortgage Insurance premiums. Conversely, lower credit scores may result in higher premiums or make it harder to secure favorable rates.

The loan term length can also influence mortgage insurance rates. Longer terms, like a 30-year mortgage, sometimes carry higher rates due to extended lender risk exposure. Thus, a 15-year loan might have a lower mortgage insurance rate than a 30-year loan, even with the same LTV and credit score.

Payment Structures for Mortgage Insurance

Mortgage insurance premiums are collected from the borrower through several distinct payment arrangements. The most common method involves monthly payments, with the premium integrated into the regular mortgage statement. This structure is typical for Private Mortgage Insurance (PMI) on conventional loans and the Annual Mortgage Insurance Premium (Annual MIP) on FHA loans.

Some mortgage insurance types require an upfront payment at closing. This includes the Upfront Mortgage Insurance Premium (UFMIP) for FHA loans and the VA Funding Fee for VA loans. Borrowers often have the option to finance these lump-sum fees into the loan amount, which increases the principal balance.

Lender-Paid Mortgage Insurance (LPMI) is another option. With LPMI, the lender pays the premiums directly to the insurer, and the borrower accepts a slightly higher interest rate. This means the borrower does not see a separate mortgage insurance line item, but the cost is incorporated into their interest rate. The more standard arrangement is Borrower-Paid Mortgage Insurance (BPMI), where the borrower directly pays the monthly premiums, common with PMI and FHA’s Annual MIP.

Strategies for Eliminating Mortgage Insurance

For homeowners with Private Mortgage Insurance (PMI) on conventional loans, several pathways exist to eliminate these payments. The Homeowners Protection Act (HPA) mandates automatic PMI termination once the loan-to-value (LTV) reaches 78% of the original loan amount, or at the loan’s midpoint for certain high-risk loans. Borrowers can also proactively request PMI cancellation at 80% LTV, requiring a good payment history and current appraisal. Refinancing to a new conventional loan without PMI is another strategy, especially if the home’s value has increased, allowing the borrower to achieve a lower LTV.

Eliminating FHA Mortgage Insurance Premiums (MIP) follows different rules. For most FHA loans originated after June 3, 2013, with less than a 10% down payment, the Annual MIP is required for the life of the loan. In these cases, removing MIP typically requires refinancing the FHA loan into a conventional loan once sufficient equity is established. If the FHA loan was originated after June 3, 2013, with a down payment of 10% or more, the Annual MIP terminates after 11 years.

The VA Funding Fee, unlike PMI or FHA MIP, is a one-time upfront payment made at loan closing. Therefore, no ongoing payments need elimination once the loan is disbursed. However, certain eligible veterans, such as those receiving VA compensation for a service-connected disability, are exempt from paying this fee altogether.

Citations

“What is Private Mortgage Insurance (PMI)? – Consumer Financial Protection Bureau.” Consumer Financial Protection Bureau, www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-pmi-en-195/. Accessed 31 Aug. 2025.
“FHA Mortgage Insurance Premium (MIP): What It Is & How It Works.” Rocket Mortgage, www.rocketmortgage.com/learn/fha-mortgage-insurance. Accessed 31 Aug. 2025.
“FHA MIP: Mortgage Insurance Premium – FHA.com.” FHA.com, www.fha.com/fha_mortgage_insurance_premium. Accessed 31 Aug. 2025.
“When does FHA MIP fall off? – FHA.com.” FHA.com, www.fha.com/fha_faq_when_does_fha_mip_fall_off. Accessed 31 Aug. 2025.
“VA home loan funding fee – Veterans Affairs.” U.S. Department of Veterans Affairs, www.va.gov/housing-assistance/home-loans/funding-fee/. Accessed 31 Aug. 2025.
“Homeowners Protection Act (HPA) of 1998 – Consumer Financial Protection Bureau.” Consumer Financial Protection Bureau, www.consumerfinance.gov/compliance/compliance-resources/mortgage-lending-resources/private-mortgage-insurance-pmi/homeowners-protection-act-hpa/. Accessed 31 Aug. 2025.
“When Can I Remove PMI From My Mortgage? – Investopedia.” Investopedia, www.investopedia.com/when-can-i-remove-pmi-from-my-mortgage-7499703. Accessed 31 Aug. 2025.