1. Borrower-Paid Mortgage Insurance (BPMI)
BPMI is the most common one among PMI and it refers to an extra fee in monthly mortgage payment. When their loan closes, there are four ways for participants to remove their BPMI. The most conventional way is to accumulate enough home equity which should reaches 22% of the entire equity and their BPMI will be removed automatically. However, this measure is rather passive and may generally take participants 11 years.
Other ways are more proactive. One is to ask the lender directly. To do so, the participants should have 20% home equity. Their mortgage payments should be current and they should get their home’s current value proved through an appraisal, a broker’s price opinion or an automatic valuation model. Besides, they should have no other liens. After that, lenders will evaluate participants’ payment history to decide whether to cancel their BPMI or not. The other way is through refinancing. If participants choose this measure, they should weight the cost between refinancing and the cost of paying BPMI. The last way is to prepay mortgage principal in order to have 20% home equity.
2. Single-Premium Mortgage Insurance (SPMI)
SPMI is a mortgage insurance that asks participants to pay the insurance in total at the very beginning. It could be a better choice for those who plan to stay in the house for more than three years. If participants choose SPMI, their monthly payment will be lower and they do not need to refinance to remove PMI or keep an eye on their loan-to-value ratio to remove their PMI actively. However, participants should be aware that if they refinance for the single premium or sell the house in a few years, their paid SPMI is not refundable and they have to pay the interest as long as they hold the mortgage. Note that not all lenders provide SPMI and participants should always negotiate with lenders at first.
3. Lender-Paid Mortgage Insurance (LPMI)
LPMI requires lenders pay the mortgage insurance premium as what is suggested in the name. However, it is the participants who pay for it with a higher interest rate. Although this interest rate is slightly higher, participants can enjoy a lower cost compared with regular monthly PMI payment and they are able to borrow more. If they wish to lower their interest rate, they can only choose to refinance when they equity reaches 20% or 22%.With LPMI, participants can’t cancel it even when their equity reaches 78%.
4. Split-Premium Mortgage Insurance
Split-Premium Mortgage Insurance is a combination of BPMI and SPMI and it is the least common type of PMI. It is designed for those with higher debt-to-income ratio since they can’t borrow enough money if they don’t increase their monthly payment. With split-premium mortgage insurance, participants can “split” their mortgage insurance by paying part of it as a lump sum at closing (ranging from 0.5% to 1.25% of the loan amount) and paying part of it in monthly payment (based on their net loan-to-value ratio). In this way, they don’t need to gather a huge amount of money as they do with SPMI and they don’t need to pay higher monthly payment as they do with PMI. If the mortgage insurance is removed, a portion of the premium is refundable.
5. Federal Home Loan Mortgage Protection (MIP)
MIP is only used for the loans underwritten by the Federal Housing Administration. All FHA loans and the ones with less than 10% down payment need MIP. With MIP, participants need to make both upfront and monthly payment. It cannot be removed unless participants choose to refinance their home and they should still wait 11 years to remove the MIP if their down payment reaches 10%.