PMI vs. MIP: Which Costs More Over 10 Years?

For American homebuyers making down payments below 20%, mortgage insurance is unavoidable. The insurance is designed to protect lenders from losing money if the borrower fails to repay the loan, but the homeowner is responsible for paying the cost. There are two main types of mortgage insurance:

While both protect lenders if you default, their pricing structures and cancellation rules lead to significant long-term cost differences.

In this analysis, we’ll compare PMI and MIP over a 10-year period, using real loan scenarios to answer:

• Which costs more upfront?
• How do monthly premiums stack up?
• When can you cancel each — and how does that impact total expenses?

By the end, you’ll know exactly which option aligns with your down payment, credit profile, and long-term homeownership plans.

What Is PMI and How Does It Work?

PMI protects conventional loan lenders when borrowers make down payments below 20%. PMI typically involves monthly payments added to the mortgage.

• No Upfront Premium: PMI typically involves no upfront payment (except for single-premium PMI).
• Monthly Premiums: Costs range from 46% to 2%of the loan amount annually, heavily influenced by credit score and down payment.
• Cancellation Flexibility: By law, PMI must be canceled automatically at 78% loan-to-value (LTV)or upon request at 80% LTV.

Example: For a $350,000 loan with a 5% down payment and a 720 credit score, expect PMI to cost approximately $170/month (0.58% rate). Over 10 years, this totals $20,400, but cancellation at 80% LTV (often around year 10) reduces the total.

What Is MIP and How Does It Work?

MIP is mandatory for all FHA loans, regardless of down payment size. Its structure includes:

• Upfront Fee: A 75%upfront premium added to the loan balance. For a $350,000 loan, this equals $6,125.
• Annual Premiums: Ranging from 15% to 0.75%, based on LTV and loan term. For a 30-year loan with 3.5% down, the annual MIP is 0.55%($160/month).
• Long Duration: For down payments under 10%, MIP lasts the entire loan term. At 10%+ down, it runs for 11 years.

Example: That same $350,000 FHA loan (3.5% down) carries a $6,125 upfront fee + $160/month. Over 10 years, MIP costs $25,325 — even if you refinance early.

10-Year Cost Comparison: PMI vs. MIP

To compare fairly, we’ll analyze three common scenarios using a $350,000 loan and a fixed 30-year term. Assumptions include 5% down for PMI (minimum 3% for conventional) and 3.5% down for MIP (FHA minimum). PMI rates reflect credit score tiers.

Borrowers with credit scores above 720 consistently save with PMI, while those below 680 benefit from MIP. Larger down payments narrow the gap but still favor PMI due to cancellability.

Why Cancellation Rules Drive Long-Term Costs

The inability to cancel MIP early is its biggest financial drawback:

PMI Cancellation

Federal law allows borrowers to request cancellation once they reach 20% home equity based on the original property value. Lenders must automatically terminate PMI when equity reaches 22%. PMI exits at 78–80% LTV, achievable via extra payments, appreciation, or refinancing.

MIP Cancellation 

Rules depend on when the FHA loan originated and how much was put down:

• Loans Originated Before June 2013: MIP can be canceled after five years if the loan balance reaches 78% of the home’s original value.
• Loans Originated After June 2013:
  • Down Payment of Less Than 10%: MIP is required for the life of the loan.
  • Down Payment of 10% or More: MIP payments continue for at least 11 years.

This makes FHA loans costlier over time, despite their lower credit score flexibility. Refinancing to a conventional loan to shed MIP adds closing costs ($2,000–$6,000), further eroding savings.

Refinancing to Remove Mortgage Insurance

Refinancing offers an option to remove either type of mortgage insurance early:

• PMI Removal Through Refinancing: Homeowners with increased home equity or improved credit scores may refinance into a new conventional loan without PMI.
• MIP Removal Through Refinancing: Borrowers can refinance their FHA loan into a conventional loan, eliminating MIP if they have at least 20% equity.

Understanding these rules helps homeowners plan and potentially reduce mortgage insurance costs over time.

Borrowers choosing between PMI vs. MIP should consider both upfront fees and how long they’ll be required to pay annual premiums, as these factors drive total mortgage insurance expense over a decade.

Loan-to-Value Ratio (LTV) Impact on MIP and PMI

The LTV ratio measures the loan amount compared to the appraised value or purchase price of a home.

Higher LTV ratios (closer to 97% for conventional, 96.5% for FHA) mean higher risk for lenders, which directly increases both PMI and MIP premiums.

• PMI: A borrower with a 95% LTV will pay higher monthly PMI than one with an 85% LTV.
• MIP: FHA annual MIP rates also scale with LTV. For instance, loans over 95% LTV are charged at a higher annual rate than those below.

Credit Score Impact on PMI and MIP Costs

PMI costs are highly sensitive to credit score. Borrowers with scores above 760 may pay as little as 0.22% of the loan amount annually for PMI, while those below 620 often pay over 1.5%.

MIP costs are less influenced by credit score; FHA’s structure offers more predictable rates regardless of borrower creditworthiness, making it attractive for buyers with lower scores.

Down Payment Requirements and Their Effect

Down payment size is the trigger for requiring either insurance:

• PMI: Required when putting down less than 20% on a conventional loan. Larger down payments reduce both the cost and duration of PMI.
• MIP: Required on all FHA loans, but putting down at least 10% shortens MIP duration from the life of the loan to just 11 years.

Borrowers able to increase their down payment see immediate reductions in insurance expenses and can more quickly eliminate these added costs.

Pros and Cons Over a Ten-Year Horizon

A side-by-side comparison of PMI vs. MIP over ten years reveals important differences in both cost structure and borrower flexibility.

PMI Pros and Cons

MIP Pros and Cons

Borrowers weighing PMI vs. MIP should account for these cost and flexibility differences, as well as their own financial profile and plans for refinancing or paying down their mortgage faster.

Strategies to Reduce or Avoid Mortgage Insurance Costs Over Time

Mortgage insurance adds thousands to your loan expenses, but you can minimize—or even eliminate—these costs with the right approach. Whether you’re trying to remove PMI, cancel MIP, or avoid mortgage insurance altogether, these strategies will help you save.

1. Accelerate Home Equity Growth

• Make extra principal payments: Paying an additional $200/monthon a $300,000 loan can cut 4–5 years off your PMI timeline.
• Use lump-sum payments: Applying a $10,000 bonus or tax refundto your principal could push you past the 20% equity threshold for PMI removal.
• Request a new appraisal: If home values rise, a reappraisal may prove you’ve hit 20% equity, allowing PMI cancellation even without extra payments.

2. Refinancing Options

• FHA to Conventional Loan: If you have an FHA loan with MIP, refinancing into a conventional mortgage after building sufficient equity (typically at least 20%) can eliminate ongoing FHA-related premiums. This approach is especially useful since many FHA borrowers face MIP for the life of their loans if their original down payment was under 10%.
• Lower Interest Rates: Refinancing may also reduce your overall payment by securing a better rate in addition to removing mortgage insurance.

3. Choosing Loan Types and Down Payment Amounts 

• Selecting a conventional loan with at least a 20% down payment avoids both PMI and MIP from the outset.
• Opt for a VA or USDA loan(if eligible) to skip mortgage insurance completely, regardless of down payment.
• FHA borrowers: Put 10%+ downto limit MIP to 11 years instead of the entire loan term.

4. Improve Your Credit to Lower PMI Rates

• A 740+ credit scorecan cut PMI costs by 3% annually—saving $900/year on a $300,000 loan.
• Even raising your score from 680 to 720could reduce PMI by $100/month.

By staying attentive to changes in home value, market rates, and lender policies, you can maximize opportunities for removing unnecessary insurance costs on your home loan. Start with one high-impact move, like extra principal payments or a refinance checkup, and keep more money in your pocket long-term.