When you put less than 20% down on a home, you'll pay for mortgage insurance one way or another. The question is how. With borrower-paid PMI (BPMI), you pay a separate monthly premium that eventually goes away. With lender-paid mortgage insurance (LPMI), the lender covers the insurance cost but charges you a higher interest rate — permanently.
Neither option is universally better. The right choice depends on how long you plan to stay in the home, how quickly your equity will grow, and whether you prioritize lower monthly payments now or lower total cost over time.
This is the standard PMI most people think of. You pay a monthly premium — typically 0.3% to 1.5% of the original loan amount annually — on top of your mortgage payment. On a $315,000 loan (90% of a $350,000 home), a 0.55% PMI rate means about $144 per month.
The key feature of borrower-paid PMI: it goes away. Once your equity reaches 20% of the original purchase price (through payments and/or appreciation), you can request cancellation. At 22%, your lender must cancel it automatically. For most buyers, this takes 3–7 years.
With LPMI, the lender pays your mortgage insurance premium upfront and recoups the cost by charging you a higher interest rate — typically 0.25% to 0.50% higher than you'd get with borrower-paid PMI.
The advantage: your monthly payment is lower because there's no separate PMI line item. The disadvantage: that higher rate never goes away. Unlike borrower-paid PMI, you can't request cancellation once you hit 20% equity. The only way to eliminate the rate premium is to refinance into a new loan entirely.
Here's how the two options compare on a $350,000 home with 10% down ($315,000 loan) at a base rate of 6.75%:
| Borrower-Paid PMI | Lender-Paid (LPMI) | |
|---|---|---|
| Interest rate | 6.75% | 7.125% (+0.375%) |
| Monthly P&I | $2,043 | $2,121 |
| Monthly PMI | $144 | $0 (built into rate) |
| Total monthly | $2,187 | $2,121 |
| PMI drops off | ~Year 5 | Never (unless refinance) |
| Monthly after PMI drops | $2,043 | $2,121 |
In the early years, LPMI looks cheaper — $66 less per month. But once borrower-paid PMI drops off around year 5, the math flips. From that point forward, the BPMI borrower pays $78 less per month than the LPMI borrower, every month, for the remaining 25 years of the loan.
Borrower-paid PMI is usually the better deal if:
LPMI can be the smarter choice if:
The crossover point in the example above is roughly year 7. Before year 7, LPMI costs less in total. After year 7, BPMI costs less because the PMI has already dropped off while LPMI's rate premium continues.
Your specific breakeven depends on the rate premium your lender charges for LPMI (which varies), your PMI rate (which depends on credit score and down payment), and how quickly you reach 20% equity. Always ask your lender to quote you both options so you can compare with real numbers.
Our Compare Mortgages tool lets you model different scenarios side-by-side with adjustable PMI rates. See the true cost difference over 5, 10, and 30 years.
Compare mortgages free →There's a less common option worth knowing about: single-premium PMI, where you pay the entire insurance cost as a lump sum at closing. This eliminates both the monthly PMI charge and the LPMI rate increase.
The upfront cost is substantial — typically 1% to 3% of the loan amount ($3,150–$9,450 on a $315,000 loan). But if you plan to stay long-term and have the cash available, the math can work out better than either monthly BPMI or LPMI. Some lenders also allow the seller to pay single-premium PMI as part of closing cost negotiations.
If you qualify for a VA loan, you avoid mortgage insurance entirely — one of the biggest financial benefits of VA eligibility. VA loans have a funding fee (1.25%–3.3% of the loan amount), but no ongoing mortgage insurance at any loan-to-value ratio.
USDA loans have their own mortgage insurance structure: a 1% upfront guarantee fee plus a 0.35% annual fee. This is typically cheaper than conventional PMI but cannot be removed regardless of equity level.
Borrower-paid PMI costs more per month in the short term but saves money long-term because it goes away. Lender-paid mortgage insurance offers lower monthly payments but locks in a permanently higher rate. If you're staying long-term, borrower-paid PMI almost always wins. If you're selling or refinancing within a few years, LPMI can save you money. The key is knowing your timeline and running both scenarios with your lender's actual rates.