Lender paid mortgage insurance, or LPMI, is a conventional loan option where you skip the separate monthly private mortgage insurance (PMI) bill and pay for the coverage through a slightly higher interest rate instead. It is available when you put down less than 20%. The tradeoff: you cannot cancel LPMI later. The higher rate stays until you refinance or pay off the loan. That makes LPMI a better fit if you expect to move or refinance within a few years, and a weaker fit if you plan to keep the loan for a long time.
Here is how LPMI works, how it compares to regular monthly mortgage insurance, and how to tell which one fits your plans.
What Is Lender Paid Mortgage Insurance?
LPMI is mortgage insurance that someone other than you as the borrower pays on paper. Think of it like a delivery fee. With monthly mortgage insurance, the fee shows up as its own line on your bill. With LPMI, the fee is rolled into the loan price, so you never see it as a separate charge.
When you put down less than 20% on a conventional loan, the lender takes on more risk. Mortgage insurance protects the lender, not you, if a loan goes unpaid. With LPMI, the lender buys that coverage and builds the cost into your interest rate. You get one payment with no separate insurance line. You can read the full picture in our guide to private mortgage insurance.
LPMI vs. Monthly Private Mortgage Insurance (PMI)
The two options cover the same risk. They differ in how you pay and in whether you can ever stop paying. Here is a side-by-side look:
| Feature | LPMI | Monthly PMI |
|---|---|---|
| How you pay | Built into a higher interest rate | A separate monthly premium |
| Shows up on your bill | No | Yes |
| Can you cancel it | No, not without a refinance or payoff | Yes, once you reach enough equity |
| Federal cancellation rules | Do not apply | Apply |
| Best for | Shorter time in the loan | Longer time in the loan |
Federal law gives you the right to ask your servicer to cancel monthly borrower-paid mortgage insurance (PMI) when you reach 80% of your home’s original value. The law requires it to end automatically when it reaches 78 percent if you are current on your payments. Those rules do not cover LPMI. The FDIC’s guide to the Homeowners Protection Act explains that LPMI ends only when the loan is refinanced, paid off, or otherwise terminated.
Who Can Use LPMI?
LPMI is a feature of conventional loans, so you need to qualify for one. Here is what to know:
- Conventional loans only. FHA loans, VA loans, and USDA loans have their own insurance or fee rules, so LPMI does not apply to them.
- Less than 20% down. If you put down 20% or more, you generally do not need mortgage insurance at all.
- Credit and income. You need to meet the lender’s standards for credit, income, and debt-to-income ratio.
- Lender availability. Not every lender offers LPMI, and each one prices it differently. Ask if it is available on your loan.
LPMI is not a no-down-payment loan. Conventional loans generally require some money down, and the minimum depends on the program. If you are looking for very low down payment choices, see our conventional loan page and our guide to no money down options. Some low or smaller down payment programs, such as HomeReady and Home Possible, have their own PMI rules, so ask how LPMI fits with each.
Pros and Cons of LPMI
LPMI trades a lower bill now for a longer commitment. These are the main points on each side.
Pros of LPMI
- No separate monthly insurance charge. You get one payment that is easier to follow.
- A lower payment is possible. Depending on pricing, your monthly payment may come out lower than it would with monthly mortgage insurance. That can help your debt-to-income ratio. Compare both quotes to see.
- Good for a shorter stay. If you sell or refinance within a few years, you may pay less in total than you would with monthly insurance.
- The cost sits in your interest. Mortgage interest may be deductible, which is different from a separate insurance premium. Ask a tax professional how that applies to you.
Cons of LPMI
- You cannot cancel it. The higher rate stays for as long as you keep the loan.
- It can cost more over a long stay. Monthly PMI can drop off in several years as your balance falls and your home gains value. The LPMI rate does not.
- Home value gains do not help. With monthly insurance, a rising home value can help you reach cancellation sooner. With LPMI, the rate stays the same no matter what your home is worth.
- Not every lender offers it. Pricing and rules vary.
When Does LPMI Make Sense?
The answer comes down to how long you will keep the loan. Think of it like renting a car versus buying one. Renting costs less up front and works well for a short trip. Buying costs more at first but wins if you keep it for years.
- LPMI may fit if you expect to sell, move, or refinance within a few years. You avoid a separate monthly bill, and the higher rate does not follow you for long.
- Monthly mortgage insurance may fit if you plan to stay for many years. You can ask to cancel it when you reach 80% of your home’s original value, and your rate stays lower.
Your plans can change, so none of this is certain. If rates fall later, you could refinance out of LPMI. Our guide on whether you should refinance your mortgage shows how to weigh that.
LPMI is one of several ways to avoid a separate monthly premium. Here are two others:
- Put 20 percent down payment. This is the simplest way to skip mortgage insurance on a conventional loan.
- Use a combo loan. A combo loan uses a first and second mortgage to reach 20% down without paying cash for all of it. Terms vary by lender.
How to Compare Your Options
A good comparison takes about ten minutes with a loan officer. Ask for each of these in writing:
- The mortgage rate and mortgage payment with LPMI.
- The rate and payment with monthly mortgage insurance.
- How long monthly insurance would last if your home stays at its current value.
- The cost of each option at the time you expect to move or refinance.
Compare the full cost, not only the payment. A lower monthly mortgage payment can still cost more over time. Rates move often, so check today’s numbers on our current rates page.
Your Next Steps
Here is a simple order to follow:
- Decide how long you expect to stay. A rough guess helps.
- Check your credit. Our guide on how to improve your credit score can help if you want to raise it first.
- Decide how much you can put down.
- Ask for both quotes. Get one with LPMI and one with monthly mortgage insurance premiums.
- Compare the total cost. Look at the full picture over the time you plan to keep the mortgage loan.
- Talk to us. We can run both options with your numbers.
Lender-Paid PMI FAQs
Here are answers to the questions buyers ask us most about lender-paid mortgage insurance.
What does lender-paid mortgage insurance mean?
It means the lender arranges and pays for the mortgage insurance, and you cover the cost through a higher interest rate. You do not get a separate monthly insurance bill.
Is LPMI really free?
No. The cost is built into your interest rate, so you pay for it over the life of the loan. It is a different way of paying, not a way of skipping the cost.
Can I cancel LPMI?
No. LPMI cannot be canceled. It ends only when you refinance, pay off the loan, or otherwise end it. The federal cancellation rules for monthly mortgage insurance do not apply to LPMI.
Is LPMI better than monthly mortgage insurance?
Neither one is better for everyone. LPMI often fits a shorter stay. Monthly mortgage insurance often fits a longer one, because it can be canceled later.
Can I get LPMI on an FHA, VA, or USDA loan?
No. LPMI is a conventional loan feature. FHA, VA, and USDA loans have their own insurance or fee rules.
Do I need 20% down for LPMI?
No. LPMI is for buyers who put down less than 20%. If you put down 20% or more, you generally do not need mortgage insurance.
Is LPMI available with no money down?
No. Conventional loans generally require making a down payment. The minimum depends on the program, so ask your loan officer about your options.
Does LPMI make my interest rate higher?
Yes. The increase depends on your credit, your down payment, and the market. Ask for a quote with LPMI and one without to see the difference.
Is LPMI tax deductible?
The extra cost is part of your interest rate, and mortgage interest may be deductible. Whether it is for you depends on your situation, so ask a tax professional.
Can I get out of LPMI later?
Yes, by refinancing. If rates drop or your home gains value, a refinance could remove it. You would pay closing costs on the new loan, so run the numbers first.
Ready to Compare Your Options?
Tell us your budget, your down payment, and how long you plan to stay. We will show you LPMI and monthly mortgage insurance side by side so you can pick the one that fits. Apply online or call (262) 305-0680.
Union Home Mortgage is not acting on behalf of or at the direction of Fannie Mae, Freddie Mac, or the Federal Government. These materials are not from Fannie Mae or Freddie Mac and were not approved by Fannie Mae, Freddie Mac, or a government agency.
The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above.
Union Home Mortgage Corp. does not provide tax, legal, credit repair, or accounting services. The information provided is generally true but may not apply to you or your situation. For tax or legal advice please consult an appropriate professional in one of these fields.
