When you put less than 20% down on a conventional loan, you pay for mortgage insurance one way or another. The question is whether you write a separate monthly check or absorb the cost through a higher interest rate. Understanding the mechanics and break-even math helps you pick the structure that fits your timeline.
Borrower-paid PMI (BPMI)
This is the default. The lender orders coverage from a private mortgage insurer; you pay a monthly premium added to your housing payment. On a $400,000 loan at 95% LTV, BPMI might run $200–$300 per month depending on credit score and coverage percentage. The key advantage: you can request cancellation once your loan balance drops to 80% of the original appraised value, either through regular amortization or a new appraisal if the home appreciates. Federal law requires automatic termination at 78% LTV if you are current. These figures are illustrative; rates and products are subject to change and this is not a commitment to lend.
Lender-paid PMI (LPMI)
Here the lender pays the insurer's premium up front or monthly and recovers the cost by raising your note rate—typically 0.25% to 0.75% depending on LTV and credit. You see no separate PMI line item, just a higher rate for the life of the loan. On that same $400,000 loan, a 0.50% rate bump adds roughly $200 per month to principal and interest. The trade-off: you cannot cancel LPMI by hitting 80% LTV. The higher rate is permanent unless you refinance.
Single-premium paid mortgage insurance (SPPMI)
A third option: pay the entire premium in one lump sum at closing, either out of pocket or financed into the loan. SPPMI eliminates the monthly bill and keeps your note rate unchanged, but you forfeit the premium if you sell or refinance early. It makes sense when you expect to hold the loan long enough to beat the cumulative cost of BPMI.
Break-even by holding period
If you plan to refinance or move within three to five years, BPMI usually wins because you can cancel it partway through and you are not locked into a higher rate forever. If you expect to keep the loan seven years or longer and your equity will stay below 80% for most of that time, LPMI's lower monthly outlay and simpler qualification ratios may appeal—just remember you are trading monthly savings now for a higher total interest bill later. Run the numbers with your loan officer: compare the monthly payment difference, the point at which BPMI drops off, and your realistic holding period. The Alliance take: most buyers who can reach 80% equity within five years come out ahead with BPMI and a plan to cancel; those who prefer rate-and-term simplicity and slower equity build-up sometimes choose LPMI knowing they will eventually refinance to shed it.
Ready to model your scenario? Use our calculators or start an application to see which structure saves you the most over your actual timeline.