Lender-Paid Mortgage Insurance (LPMI) is a mortgage option where the lender covers the mortgage insurance cost upfront and recoups that cost by charging the borrower a higher interest rate, which can lower the borrower’s monthly payment but often raises the total interest paid over the life of the loan.
Homebuyers with less than 20% down, real estate shoppers comparing loan offers, and borrowers deciding whether to prioritize lower monthly cash flow or lower long-term cost generally search for LPMI. Typical goals: reduce monthly payment, simplify billing (no separate PMI line), or shop lender incentives when down payment is small.
The lender pays the mortgage insurer directly (that’s why it’s called lender-paid). To recover that expense the lender sets a slightly higher mortgage interest rate (or charges lender fees/credits) so the borrower indirectly funds the insurance across the loan’s life via interest rather than a separate monthly premium.
With traditional Borrower-Paid Mortgage Insurance (BPMI), the borrower pays a monthly PMI premium that can be canceled once sufficient equity is reached. With LPMI the borrower pays a higher rate for principal and interest (P&I) and no separate monthly PMI — but that higher rate stays on the loan unless you refinance.
Not all lenders structure LPMI the same. Variations include: a permanent higher rate, a one-time lender credit that buys down closing costs (sometimes tied to LPMI), or a mix of fees and rate adjustments. Always ask whether the higher rate is permanent and whether any credits are refundable or conditional.
Quick contrast: LPMI = higher interest rate, no monthly PMI, generally not cancelable (except by refinance). BPMI = separate monthly PMI that can usually be canceled when loan-to-value (LTV) reaches 80% (per lender rules). Upfront MI (UPMI) is a single upfront premium (paid at closing) that avoids monthly PMI but may be refundable partially depending on program.
LPMI can reduce initial monthly payment but increase total interest paid across decades. BPMI raises monthly payment early (because of the PMI line) but that extra payment stops once equity hits the lender’s threshold, reducing lifetime cost. Compare monthly cash flow and total cost over the expected holding period to decide.
Compare offers using three metrics: 1) Monthly payment (P&I + PMI if any), 2) APR (reflects financing cost including fees but can be misleading for LPMI nuances), and 3) total cost over your expected ownership horizon (sum of monthly payments + upfront fees + expected refinance/sale costs). Use your planned years in the home for the most relevant comparison.
Example (realistic, rounded numbers): Purchase price $250,000, 12% down → loan $220,000.
Short horizon (3 years): Total paid — BPMI: $1,116.50×36 ≈ $40,194. BPMI’s PMI paid ≈ $5,940 of that; LPMI: $1,000.15×36 ≈ $36,005 — LPMI saves about $4,188 over 3 years.
Cancellation assumption: BPMI cancels when loan balance ≤ 80% of original value (in this example ~ $200,000). With the numbers above that occurs at ~51 months (≈4.25 years). Total PMI paid until cancellation ≈ $165×51 ≈ $8,415.
30-year horizon: Total paid — LPMI: $1,000.15×360 ≈ $360,054. BPMI: P&I $951.50×360 ≈ $342,540 plus PMI until ~51 months ≈ $8,415 → total ≈ $350,955. Over 30 years BPMI is about $9,100 cheaper in this example.
Break-even: Using these numbers LPMI saves money while PMI is charged (≈51 months), but after PMI cancels the permanently higher LPMI rate causes LPMI to become more expensive. In this example the net break-even is roughly 14–15 years (after which LPMI is costlier than BPMI over the full holding period).
APR (annual percentage rate) includes interest and many finance charges, which helps compare loans with different fee structures. APR can be useful when comparing an LPMI loan vs BPMI loan with different lender fees. However, APR won’t reflect future PMI cancellations and can hide the long-term interest impact of a permanently higher rate.
Even if monthly payments are temporarily lower with LPMI, that higher interest rate compounds over time and increases the total interest portion of payments over the loan’s life. That’s why LPMI can be cheaper short-term but more expensive long-term.
If you expect to sell or refinance before the LPMI break-even point (example above: ~14 years), or if monthly cash flow constraints are paramount, LPMI can be the better choice. If you plan to keep the loan longer, or expect to reach 20% equity and cancel PMI, BPMI is often cheaper overall.
Generally LPMI cannot be canceled because the lender recouped the cost via a higher rate up front; the rate stays unless you refinance. BPMI, by contrast, is typically cancellable once LTV reaches 80% under lender/TILA/RESPA rules (check your loan documents for exact terms).
To remove LPMI you typically refinance into a loan with no MI (by getting to 80% LTV or higher-quality loan terms). Refinancing incurs closing costs and underwriting; run a refinance break-even analysis comparing refinance cost vs future monthly savings to determine if it makes sense.
Refinance when your new monthly payment reduction (or interest savings) will pay back the refinance closing costs within a period you expect to remain in the home. Also consider current market rates, your credit score, and home value changes (equity gains from price appreciation can reduce or eliminate the need for MI on refinance).
Check the Loan Estimate (LE) and Closing Disclosure (CD) for: the interest rate, APR, “mortgage insurance” line (it may show $0 for LPMI), lender credits or fees, and a clear explanation in the “Other Loan Provisions” or “Loan Terms” section about MI treatment. If MI is paid by the lender, you should still see a disclosure describing that arrangement and the higher rate.
Laws like the Truth in Lending Act (TILA) require APR disclosure; RESPA requires certain borrower protections and timing for LE and CD delivery. These disclosures help consumers compare offers, but you must read the MI treatment language closely — APR won’t tell you whether MI is cancelable.
Conventional loans often offer LPMI options. FHA loans do not offer LPMI in the same way — FHA mortgage insurance (MIP) has separate upfront and annual components with their own rules. Always check program rules: LPMI options and availability vary by loan type and insurer.
Lenders may offer LPMI to borrowers with stronger credit profiles or those in competitive markets who need lower monthly payments. However, some lenders market LPMI broadly; qualification depends on lender policy, credit score, LTV, and overall pricing strategy.
Lenders price LPMI differently — some will give a smaller rate bump, others will combine LPMI with lender credits. Shop multiple lenders and negotiate: a lender willing to absorb more MI cost may offer a smaller rate increase, or may offer temporary buydowns that interact with LPMI pricing.
If mortgage insurance premiums are paid by the lender via LPMI, the borrower does not have monthly MI payments to deduct. Historically some PMI premiums were tax-deductible for taxpayers who qualified, but tax treatment depends on law and whether the borrower actually paid the premium.
Tax rules for mortgage insurance deductions have changed over time. Always verify current IRS guidance or consult a tax professional — this guide does not replace tax advice.
Spreadsheet columns to use: Lender name | Loan amount | Interest rate | APR | P&I | PMI monthly | Total monthly (PITI) | PMI type (BPMI/LPMI/UPMI) | PMI cancellation estimate | Upfront costs | 3-yr total | 5-yr total | 30-yr total | Notes.
Scripts:
Watch for offers that advertise a low monthly payment without showing that it’s created by LPMI (permanent higher rate) or that bury MI costs in points/fees. Ask for the LE and compare APR and total cost tables.
If numbers are close, your expected ownership horizon is long, or you have complex income/assets, ask a loan officer or mortgage advisor to run a customized break-even and refinance analysis for your situation.
Scenario: Purchase $300,000, down 5% ($15,000), loan = $285,000. Lender A (BPMI): rate 4.50%, PMI $160/mo; Lender B (LPMI): rate 4.85%, no PMI. Which to choose depends on how long the buyer expects to keep the home and refinance prospects.
Run the loan payment formula or use a mortgage calculator: compute P&I for both rates, add PMI for BPMI, sum totals for 5 years and 30 years, and include expected PMI cancellation (estimate when LTV ≤ 80%). Then compute refinance scenarios if you plan to reprice later.
Consider: increasing down payment to 20% to avoid MI; negotiating lender credits or points instead of LPMI; or using a mix like partial upfront MI plus a reduced monthly PMI—each lender may offer hybrids.
Usually yes: the higher interest rate generally remains for the life of the loan unless you refinance to a new loan without LPMI.
Rate increases vary. Typical LPMI rate bumps range from a few basis points up to roughly 0.25–0.50%+ depending on lender pricing, borrower credit, and LTV. Ask lenders for exact pricing for your profile.
You can refinance anytime, but immediate refinance may not be cost-effective because of closing costs. You’ll generally need to weigh refinance costs vs potential savings. Also check seasoning requirements for some programs.
LPMI is less common and often less favorable for investment properties; PMI rules, rates and availability differ for investment loans — expect higher rates and different cancellation rules. Confirm with lenders who specialize in investor loans.
Use mortgage payment calculators and amortization tables. Put together a spreadsheet with columns for monthly payments, PMI duration, refinance costs, and total cost across your target horizon.
Review your Loan Estimate and Closing Disclosure for MI language. For definitions see related glossary terms like PMI, BPMI, APR, and Refinance. Consult HUD/TILA/RESPA material or a housing counselor for program-specific questions.
Lender-Paid Mortgage Insurance (LPMI) trades a separate monthly PMI premium for a permanently higher interest rate, typically lowering monthly payment now but increasing total interest over time. LPMI often makes sense for buyers prioritizing near-term cash flow or those who expect to move/refinance before the break-even point; BPMI typically wins for long-term owners who will reach 20% equity and cancel PMI.
Print/save these checklist items: Loan Estimate from each lender, interest rate and APR, monthly P&I, monthly PMI (if any), estimated PMI cancellation date, upfront fees/credits, and projected totals for your 3/5/10/30-year horizons.
If you want, I can now: 1) Fill in an expanded SEO-optimized body paragraph for each H2/H3 section, or 2) Produce the detailed numeric example spreadsheet and a printable comparison checklist (with the exact calculations and a downloadable-friendly table). Which would you prefer next?
