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The short answer
Borrower-paid PMI (a separate monthly insurance premium) almost always costs less over time than a higher mortgage rate, because PMI can be canceled once you reach 20% equity while a higher rate sticks with you for the life of the loan. Lender-paid mortgage insurance (LPMI) flips the tradeoff: the lender covers PMI but charges you a higher rate instead — convenient, but you can never cancel the rate premium, so it is only attractive if you plan to sell or refinance soon. The break-even point depends on your down payment, the PMI quote, and how long you will keep the loan — run the numbers on both, not just the headline rate.
How each option works
Borrower-paid PMI (BPMI). With less than 20% down on a conventional loan, you pay a monthly PMI premium on top of principal and interest. PMI typically runs 0.3–1.5% of the loan amount per year, depending on credit score, down payment, and loan term. Under the federal Homeowners Protection Act, PMI cancels automatically at 78% loan-to-value (based on the original amortization schedule) and you can request cancellation at 80% LTV with a current appraisal.
Lender-paid mortgage insurance (LPMI). The lender pays the PMI premium in exchange for charging you a higher interest rate — usually 0.25–0.50% above the no-PMI rate. There is no separate MI line item on your monthly bill, which simplifies the payment. But the rate premium is permanent: even after you pass 20% equity, the higher rate stays until you refinance.
Monthly cost comparison (illustrative)
Assumptions: $500,000 purchase, 10% down, $450,000 loan, 30-year fixed, as of October 2026. Numbers are illustrative — your quotes will differ.
| Option | Rate | Monthly P&I | Monthly PMI | Total monthly | PMI cancellation |
|---|---|---|---|---|---|
| BPMI (0.5%/yr PMI) | 6.25% | $2,771 | $188 | $2,959 | At 20% equity (request) / 22% (automatic) |
| LPMI | 6.625% | $2,881 | $0 | $2,881 | Never — rate premium is permanent |
In this example, LPMI is ~$78/month cheaper at first. But once BPMI's PMI drops off (roughly year 7–9 with normal amortization and appreciation), the BPMI loan becomes ~$110/month cheaper — and the gap compounds for the rest of the loan term. If you keep the loan 10+ years, BPMI usually wins by thousands.
How to decide
- Get both quotes from the same lender. Ask for a BPMI quote and an LPMI quote on the identical loan amount and term — most lenders can price both.
- Estimate your cancellation date. With 10% down, PMI typically cancels in year 7–10 through amortization alone; appreciation or extra payments move it earlier.
- Compare total cost to your horizon. If you will sell or refinance within ~5 years, LPMI's lower early payment can win. If you will hold the loan longer, BPMI's cancellation usually wins.
- Check Section J of the Loan Estimate. PMI appears there as a line item for BPMI loans — confirm the monthly figure matches the quote, and check whether the lender's LPMI rate bump matches what was advertised.
Common mistakes
- Picking the lower monthly payment without modeling cancellation. LPMI looks cheaper on day one; BPMI usually wins by year 10. Your timeline decides.
- Forgetting you can request PMI cancellation at 80% LTV. You do not have to wait for the automatic drop at 78% — a good payment history and a current appraisal can end PMI sooner.
- Comparing quotes from different lenders on different terms. LPMI vs. BPMI math only works when the loan amount, term, and lock date match. Line them up in the Loan Estimate comparison tool.
Methodology and limitations
PMI rates vary by credit score, LTV, loan term, and insurer — the 0.3–1.5%/yr range and the LPMI rate bump of 0.25–0.50% are typical market ranges as of October 2026, not quotes. Example figures are illustrative and use rounded assumptions. PMI cancellation rules described apply to conventional loans under the Homeowners Protection Act; FHA and USDA loans have different mortgage insurance rules. Your actual pricing depends on credit, property, and timing.
Reviewed by the LoanMate.ai editorial team.
Primary sources
- Consumer Financial Protection Bureau (CFPB): private mortgage insurance rules and cancellation rights
- Fannie Mae: HomeReady and standard PMI guidelines
- Freddie Mac: mortgage insurance requirements
Next action
Browse today's published mortgage rates → to see the market range, then compare your Loan Estimates side by side → when you have offers in hand.