Kitchen with mosaic backsplash and butcher block countertops.

Mortgage Insurance: Definition, Different Types And Cost

Victoria Araj5-minute read

October 20, 2023


It’s important to understand the costs you’ll be responsible for when you buy a home with a mortgage loan. One of those expenses might be mortgage insurance. We’ll walk you through the different types of mortgage insurance, how long you’ll have to pay it, the approximate costs and whether you can avoid it.

What Is Mortgage Insurance?

Mortgage insurance is a type of insurance that protects against default on home loans. Because private mortgage insurance (PMI) mitigates risk to the investors who own mortgages, it allows folks with down payments less than 20% to purchase a home. This, in addition to other measures taken by lenders, such as including a mortgagee clause within your homeowners insurance policy, helps to protect mortgage investors.

Generally, if you put less than 20% down on a home, most conventional loans will require you to purchase PMI. A conventional loan is one that isn’t backed by the federal government.

Mortgage insurance may be an additional monthly expense you’ll need to consider. If PMI is required, your lender will likely include your PMI expense in your monthly mortgage payment automatically. The lender oversees selecting the mortgage insurance company, so you won’t be able to shop around, but you can ask for a quote before you finalize your paperwork.

See What You Qualify For


Type of Loan

Home Description

Property Use

Your Credit Profile

When do you plan to purchase your home?

Do you have a second mortgage?

Are you a first time homebuyer?

Your email address () will be your Username.
Contains 1 Uppercase Letter
Contains 1 Lowercase Letter
Contains 1 Number
At Least 8 Characters Long
Go Back


By submitting your contact information you agree to our Terms of Use and our Privacy Policy, which includes using arbitration to resolve claims related to the Telephone Consumer Protection Act.!

NMLS #3030
Rocket Mortgage Logo

Congratulations! Based on the information you have provided, you are eligible to continue your home loan process online with Rocket Mortgage.

If a sign-in page does not automatically pop up in a new tab, click here

Rocket Mortgage Logo

What’s The Cost Of Mortgage Insurance?

Mortgage insurance costs depend on the type of insurance you have. On average, you can expect to pay .1% – 1% of your home loan amount annually with PMI.

Your premiums for PMI will depend on:

  • Your PMI type
  • Whether the interest rate is fixed or adjustable
  • The length of your home loan, also known as your mortgage term
  • Your loan-to-value (LTV) ratio
  • The insurance coverage amount required by your lender
  • Your credit score
  • Your home’s value
  • Whether the premium is refundable
  • Additional risk factors, which will be determined by your lender

For instance, if you have a low credit score and only put down a 3% down payment, you’ll likely pay a higher amount for your mortgage insurance than a buyer with a better credit score who put down more money on the same home.

How Is Mortgage Insurance Calculated?

If you want to make a conservative estimate before applying for a loan, it’s best to expect a 1% rate. Your premium will be recalculated every year as you pay off your principal, so expect it to decrease with time.

Let’s say you put 5% down on a $200,000 home, leaving you with a $190,000 conventional loan. If the mortgage insurance company is charging you 1%, your annual PMI payment is $1,900. Your lender will likely consolidate the monthly PMI fee of $158.33 along with your mortgage payments.

You can also use our mortgage calculator to get an estimate that includes property taxes, homeowners insurance and mortgage interest. In addition, you may want to include any expenses from mortgage protection insurance. This is different from mortgage insurance and helps borrowers and their families cover their mortgage, in the event payments can’t be made. Though it’s not required, mortgage protection insurance may be an additional expense you’ll want to account for when estimating monthly payment costs.

What Are The Different Types Of Mortgage Insurance?

There are three different types of mortgage insurance you should be aware of. Here’s a quick overview of each type.

1. Borrower-Paid Mortgage Insurance

In most cases, your PMI will be borrower-paid mortgage insurance (BPMI). When lenders talk about PMI, this is usually the type they’re referring to. BPMI is the type of mortgage insurance that’s rolled into your monthly mortgage payment.

Let’s break down how it could affect your costs. Typically, you’ll pay about .5% – 1% of your loan amount per year for PMI. This translates to $1,000 – $2,000 per year in mortgage insurance for the average U.S. homeowner that is required to carry coverage, or about $83 – $166 per month.

You can cancel PMI after you have reached more than 20% equity of the home’s value. For single-family homes, this occurs when you have reached 78% LTV ratio, which means you the value of the loan is 78% of the value of your home, or when you’ve reached the midpoint of your loan term – that’s 15 years for a 30-year mortgage.

2. Lender-Paid Mortgage Insurance

Lender-paid mortgage insurance (LPMI) means your lender initially pays your mortgage insurance, but your mortgage rate is slightly higher to compensate for that lender payment. The interest rate increase is typically .25% – .5% more for LPMI. You’ll save on monthly payments and you’ll have a lower down payment because you’re not required to have 20% down with LPMI.

The lower your credit score, the higher your interest rate will be. LPMI will cost you more if you have a lower credit score. Also, you’ll never be able to cancel LPMI (unless you refinance) because it’s built into your payment schedule for the entire loan term.

3. FHA Mortgage Insurance Premium

We’ve covered the types of mortgage insurance options for conventional loans, but what about government-backed home loans? Most Federal Housing Administration (FHA) home loans, which are first-time home buyer loans financed through the federal government, also require the purchase of mortgage insurance, called a mortgage insurance premium (MIP).

In most cases, you pay mortgage insurance for the duration of your loan term unless you make a down payment of 10% or more (in which case, MIP would be removed after 11 years). You’ll need to pay a couple of ways. First, an FHA loan upfront mortgage insurance premium (UFMIP), which is usually about 1.75% of your base loan amount.

In addition to FHA UFMIP, you’ll also pay an annual mortgage insurance premium. Annual MIP payments run approximately .45% – 1.05% of the base loan amount.

MIP works similarly to borrower-paid mortgage insurance, but it has a few key differences. Like BPMI, you’ll pay a monthly amount, typically rolled into your mortgage payment.

Here’s how it could work: You’ll pay a one-time only upfront payment that is 1.75% of the loan amount. If your home loan is for $200,000, expect to pay (or roll into your loan) $3,500 for UFMIP at the time of closing. FHA loans also require you to pay an average of .85% of your home loan for MIP throughout the duration of your mortgage. This percentage can run higher, depending on how much of a down payment you put down on your loan.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Home Mortgage Insurance FAQs

Let's discuss some of the most frequently asked questions regarding mortgage insurance.

What does mortgage insurance cover?

Mortgage insurance acts as insurance protection for your mortgage lender in case you end up unable to make your mortgage payments. This type of insurance relieves the lender of any responsibility for those mortgage payments.

How long do I need to have mortgage insurance?

The good news about PMI is that in most cases, you won’t have to continue paying it for the entire length of your home loan. Most mortgage insurance plans allow you to cancel your policy once you’ve paid off more than 20% of the full loan amount of your home.

Do USDA loans require mortgage insurance?

USDA home loans are for buyers who purchase a home in a rural area. These loans are financed through the United States Department of Agriculture (USDA) and don’t require private mortgage insurance – no matter your down payment amount. You must pay an upfront fee of 1% of your loan amount and an annual .35% fee that will serve as a replacement for mortgage insurance payments.

Do VA loans require home mortgage insurance?

VA home loans are backed by the Department of Veterans Affairs for military veterans, active duty and reserve military members or qualified surviving spouses. These loans have no down payment options and no mortgage insurance requirements.

The Bottom Line

Mortgage insurance is an extra expense you should plan to pay if you opt for a conventional loan and put less than 20% down on your home. Mortgage insurance offers greater access to homeownership for borrowers who are unable to pay 20% on a down payment. That’s because PMI protects the lender if you default on your loan. Are you ready to get started on the mortgage process? Apply online today.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.