Lender-Paid Mortgage Insurance vs Borrower-Paid PMI

Published by the Modern Lending Solutions editorial team. Last reviewed: October 30, 2026.

Short answer: with borrower-paid private mortgage insurance (PMI), you pay a monthly premium that federal law lets you cancel at 80 percent of the home’s original value and that ends automatically at 78 percent. With lender-paid mortgage insurance (LPMI), someone other than you pays the premium, and you pay for it through a higher interest rate. You cannot cancel LPMI; it ends only when the loan is refinanced, paid off or otherwise ended. LPMI can cost less in the early years and more if you keep the loan a long time. This page covers federal law only. It is general information, not legal, tax or financial advice.

What the law says

The Homeowners Protection Act defines borrower paid mortgage insurance as required private mortgage insurance paid by the borrower, and lender paid mortgage insurance as required private mortgage insurance paid by a person other than the borrower. It says the cancellation, automatic termination and related disclosure sections (12 U.S.C. 4902 through 4904) do not apply to LPMI (12 U.S.C. 4905(a)-(b), LII, read October 30, 2026). The Act covers loans on a single-family home that is your principal residence, consummated on or after July 29, 1999 (12 U.S.C. 4901, LII). It does not cover FHA mortgage insurance; see FHA mortgage insurance premiums.

The CFPB’s page on removing PMI says that if your lender is paying for your mortgage insurance, different rules apply (CFPB, last reviewed August 28, 2026, read October 30, 2026).

The notice the lender must give you

When LPMI is required, the lender must give you a written notice no later than the date of the loan commitment, the lender’s written confirmation that it has accepted your application, with any closing conditions (12 U.S.C. 4905(a)(3) and (c)(1)). The notice must say:

that LPMI differs from borrower-paid insurance because you cannot cancel it, while borrower-paid insurance could be cancelled at your request and could end automatically under the Act;
that LPMI tends to come with a higher interest rate than borrower-paid insurance, in the statute’s words;
that LPMI ends only when the mortgage is refinanced, paid off or otherwise terminated;
that both kinds have benefits and disadvantages, with a generic analysis of the costs and benefits of each over 10 years, assuming prevailing interest and property appreciation rates; and
that LPMI may be tax-deductible for federal income taxes if you itemize.

Later, no later than 30 days after the date borrower-paid insurance would have ended automatically, the servicer must send you a written notice that you may wish to review financing options that could end the need for private mortgage insurance (12 U.S.C. 4905(c)(2)). The CFPB’s examination procedures for the Act list the same notices (CFPB, CFPB Manual V.2, dated October 2012; the procedures may be out of date, so the statute above is the controlling text). For the tax point, ask a tax professional and see the mortgage insurance premium tax deduction.

How borrower-paid PMI ends

For a fixed-rate loan, the Act lets you ask the servicer in writing to cancel borrower-paid PMI once the balance is first scheduled to reach, or actually reaches, 80 percent of the original value, if you have a good payment history, are current, show the value has not fallen below the original value and certify there is no subordinate lien. It ends automatically when the balance is first scheduled to reach 78 percent of the original value if you are current, and in any case after the midpoint of the loan term if you are current (12 U.S.C. 4901(2), (18) and 4902(a)-(c), LII). Different rules apply to some loans classed as high risk at closing (4902(g)). See how to remove private mortgage insurance.

Example: payments and break-even

This example is only for the math, with example rates and premiums, not offers from any lender. It assumes a $400,000 home, a $380,000 30-year fixed loan (95% of value), a 6.5% rate with borrower-paid PMI at 0.5% of the loan a year, and a 6.875% rate with LPMI. It compares principal and interest plus the PMI premium only, rounded to the dollar, with no extra payments.

Item	Borrower-paid PMI	Lender-paid MI
Interest rate	6.5%	6.875%
Principal and interest	$2,402	$2,496
Monthly PMI premium: $380,000 × 0.5% ÷ 12	$158	Built into the rate
Monthly payment while PMI lasts	$2,402 + $158 = $2,560	$2,496
When the insurance cost stops	Month 135, when the scheduled balance first reaches 78% of $400,000 ($312,000)	Only at refinance or payoff
Monthly payment after that	$2,402	$2,496

In this example, LPMI costs $2,560 − $2,496 = $64 a month less until month 135, a saving of $64 × 135 = $8,640. From then on, LPMI costs $2,496 − $2,402 = $94 a month more, so it takes $8,640 ÷ $94 = 92 more months (rounded up) to use up the saving: LPMI becomes the more expensive choice in month 227. If you asked to cancel PMI when the scheduled balance first reached 80 percent ($320,000) in month 124, the saving would be $7,936 and the break-even month 209. Over the first 10 years in this example, LPMI payments are $7,680 lower. If you expect to sell or refinance before the break-even month, LPMI may cost less; if you expect to keep the loan longer, borrower-paid PMI may cost less. Faster payments, a rise in value or a refinance change the result; the break-even idea is the same as for points (see mortgage discount points and break-even).

Questions to ask the lender

What rate and payment do I get with borrower-paid PMI, and what with lender-paid insurance?
What is the monthly PMI premium, and in which month is it scheduled to end?
May I see the 10-year comparison in the LPMI notice?
Is there a single-premium option paid at closing, and how would it compare?
If my home value rises, what would a refinance cost?

Checklist

Get both offers in writing, with the rate and the monthly payment for each.
Find the month borrower-paid PMI would end on the PMI disclosure or amortization schedule.
Figure your own break-even month and compare it with how long you expect to keep the loan.
Keep the LPMI notice and watch for the servicer’s later notice about financing options.

To find housing counseling agencies that HUD has vetted, use the CFPB housing counselor search. You can submit a complaint at consumerfinance.gov/complaint.

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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.

Lender-Paid Mortgage Insurance: How It Compares With Borrower-Paid PMI