Is LPMI best for me?

Thinking of purchasing a home with less than 20% down? In this article, we will explain Borrower Paid Mortgage Insurance (BPMI) and Lender Paid Mortgage Insurance (LPMI) to help you determine which type of mortgage insurance is a better choice for your specific financial situation.

What is BPMI? 

Borrower paid mortgage insurance is paid on a monthly basis to the loan servicer of your mortgage. Essentially, BPMI is a monthly insurance payment, charged to the borrower for putting less than a 20% down payment. Borrower paid mortgage insurance eventually ends or is canceled when the LTV (Loan-To-Value) falls below 78-80% or the loan is paid in full. 

What is LPMI?             

Lender paid mortgage insurance is different than BPMI since the borrower pays no monthly mortgage insurance payment. Instead, borrowers agree to a slightly higher interest rate and the monthly PMI payment is bought out. For example, with lender paid mortgage insurance, a borrower might take a slightly higher rate of 4.75% instead of an interest rate of 4.5%. 

How To Determine The Type Of Mortgage Insurance That Is Best For You? 

There is much debate about which is better, BPMI or LPMI. Since everyone has unique scenarios, there is no clear cut answer as to which is best. The benefit of BPMI is there will be a point where the monthly (MI) mortgage insurance payments will stop. This occurs when the LTV reaches 78-80%. In a growing housing market, it might be better to take BPMI if you expect rapid appreciation in a short amount of time.

With LPMI, it may be advantageous to have a lower mortgage payment, while taking a slightly higher interest rate. LPMI may be the better choice, especially in our current condition of record low interest rates. It might also be beneficial if you don't anticipate being in your mortgage for the life of the loan. At the end of the day, everyone has different financial goals and scenarios, so we urge you to call your mortgage advisor to discuss which home loan options best fit your financial goals.

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