Mortgage Insurance - What Does it Cost?

There are two basic types of coverage. The first type is private mortgage insurance (PMI) policies, which are applied to conventional home loans. The federal government does not insure Conventional or “regular” loans. The second type is for those borrowers who use government-insured FHA loans.


These borrowers must also pay for mortgage insurance, but it’s different from PMI — it is provided through the federal government.


Conventional Loans
How much is private mortgage insurance, on average? A percentage of the loan amount is typically used to generate PMI fees based on the amount of your downpayment. Most often they are 0.3% to 1.15% of the amount being borrowed. This is the amount you pay each year. (Example: a $300,000 home loan with an annual insurance rate of 0.5% would have $1,500 added onto it every year. Monthly, this would come out to an extra $125 per mortgage payment.)

FHA Loans
FHA mortgage insurance tends to be harder to calculate. These FHA loans actually require two types of mortgage insurance premiums (MIPs), annual and upfront. In terms of cost, the difference between them is:

• The upfront premium is currently set at 1.75% of the base loan amount. (Example: an FHA loan of $300,000 loan would have an upfront MIP of $5,250.) Regardless of the loan size or LTV ratio, this rate applies to all borrowers. 

• The annual mortgage insurance premium on FHA loans will vary based on the size of the loan and LTV ratio ranging from 0.45% to 1.55% of the base loan amount. 

In 2013, the total cost of mortgage insurance on FHA loans was essentially increased through a new rule. FHA borrowers will have to pay their annual MIP for the entire term of the loan.

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