BPMI

What does "BPMI" mean in real estate?

Borrower‑Paid Mortgage Insurance (BPMI) is a form of private mortgage insurance (PMI) that a borrower pays directly—usually as part of their monthly mortgage payment—when they put down less than 20% on a conventional home loan. BPMI protects the lender if the borrower defaults; it does not insure the homeowner.

How BPMI works

• Added to monthly payment: The BPMI premium is typically included with principal, interest, taxes and homeowners insurance. The premium size depends on the loan amount, down payment percentage and the borrower’s credit profile.
• Why lenders require it: Lenders use BPMI to reduce their risk when a borrower has limited home equity.
• Cancellation rules: Borrowers can request cancellation once they reach 20% equity in the home. Federal rules require automatic cancellation when the loan balance reaches 78% of the original property value (assuming payments are current).
• Duration: BPMI stays in place until canceled either by the borrower (at ~20% equity) or automatically by the lender (at ~22% remaining balance, i.e., 78% LTV), unless the borrower refinances or pays down the loan faster.

BPMI vs. other mortgage insurance

• Compared with lender‑paid mortgage insurance (LPMI): With BPMI the borrower pays monthly and can remove the charge by building equity. With LPMI the lender pays the insurance and typically charges a higher interest rate instead—cancellation works differently.
• Relation to PMI: BPMI is a type of private mortgage insurance—see PMI for a broader look at private mortgage insurance options.
• Government programs: FHA, VA and USDA loans have different mortgage insurance or guaranty structures; BPMI applies to conventional loans backed by private insurers.

Real‑world examples

• First‑time buyer: Sarah buys a $300,000 home with 10% down ($30,000). Her lender requires BPMI. She pays an extra $100–$150/month for BPMI until she reaches 20% equity, then requests cancellation.
• Refinance with low equity: John and Lisa refinance a $400,000 home but owe $350,000 (≈12.5% equity). The new loan includes BPMI until they reach 20% equity or refinance again when they have more equity.
• Competitive market purchase: Alex puts 15% down on a $500,000 condo. He pays BPMI in the monthly payment and plans to remove it as home prices rise and his equity increases.

How to avoid or minimize BPMI

• Make a 20% (or larger) down payment to avoid PMI requirements.
• Consider a lender‑paid MI (LPMI) if you prefer not to have a monthly MI charge—note this often increases your interest rate.
• Use a piggyback (“80/10/10”) loan structure in some markets to avoid PMI (weigh the costs and qualifications carefully).
• Explore government loan programs (VA, USDA, FHA) if eligible—each has different insurance/guarantee rules.
• Buy discount points or negotiate loan terms if available and cost‑effective.

Common questions (FAQ)

Does BPMI protect me if I can’t make payments? No. BPMI protects the lender, not the borrower.

When can I cancel BPMI? You can request cancellation once you have 20% equity. Lenders must automatically cancel at 78% LTV if your payments are current.

How much does BPMI cost? Costs vary widely—typical monthly premiums are roughly 0.3%–1.5% of the original loan amount annually (broken into monthly payments), depending on credit score, loan‑to‑value and insurer rates.

Is BPMI tax‑deductible? Tax rules change over time. Check current IRS rules or consult a tax advisor before assuming deductibility.

Key takeaways

• BPMI is the most common form of private mortgage insurance for conventional loans with less than 20% down.
• It raises monthly housing costs but allows borrowers to buy with smaller down payments.
• BPMI can be canceled once you reach 20% equity; lenders must cancel it automatically at 78% LTV if payments are current.