MIP vs PMI: What's the Difference? A 2025 Homeowner's Guide

TL;DR: MIP (Mortgage Insurance Premium) applies to FHA loans and includes an upfront fee of 1.75% of the loan amount plus an annual premium of 0.15% to 0.75%, often for the life of the loan. PMI (Private Mortgage Insurance) applies to conventional loans, typically costs 0.5% to 1.5% annually, and cancels automatically once your loan balance hits 78% of the home's original value.

_Last reviewed: August 2026 · 7 min read_

You've seen both terms on loan paperwork and they sound like the same thing charged twice for the same reason. They're not. Which one you pay, how much it costs, and whether you can ever get rid of it depends entirely on whether your mortgage is FHA or conventional.

Okoniq Property Hub helps homeowners track mortgage insurance costs alongside escrow and equity milestones so you know exactly when a premium is scheduled to drop off.

What's the actual difference between MIP and PMI?

MIP stands for Mortgage Insurance Premium and it's required on every FHA loan, regardless of your credit score or down payment size. PMI stands for Private Mortgage Insurance and it applies to conventional loans when your down payment is below 20%.

The difference isn't just the name. MIP is set by the Federal Housing Administration and has fixed structure across all FHA lenders: an upfront premium of 1.75% of the loan amount (usually rolled into the loan) plus an annual premium ranging from 0.15% to 0.75% depending on your loan term, loan amount, and loan-to-value ratio. PMI, by contrast, is priced by private insurers and varies by lender, credit score, and down payment, typically landing between 0.5% and 1.5% of the loan amount per year.

If you're weighing which loan type to pursue in the first place, FHA vs Conventional for First-Time Buyers breaks down how these insurance costs factor into the bigger decision.

Which one costs more over time?

PMI usually costs less over the life of the loan because it can be canceled, while MIP on low-down-payment FHA loans often can't be. A borrower with a $300,000 conventional loan and 0.75% PMI pays roughly $2,250 a year until they hit 20% equity, maybe 5 to 8 years depending on the amortization pace and any extra payments.

An FHA borrower with the same loan amount and less than 10% down pays a 1.75% upfront fee ($5,250, typically financed) plus an annual MIP around 0.55% ($1,650 a year) for the entire loan term, not just until 20% equity. That's the single biggest cost difference between the two: FHA MIP on low-down-payment loans doesn't go away with equity gains alone. It only goes away if you refinance out of FHA entirely or if you put down 10% or more, in which case MIP drops after 11 years.

Understanding your amortization schedule helps you see exactly when your loan balance crosses the equity thresholds that matter for either type of insurance.

| | FHA MIP | Conventional PMI | |---|---|---| | Upfront cost | 1.75% of loan amount | None (usually) | | Annual cost | 0.15%–0.75% | 0.5%–1.5% | | Cancels automatically? | Only if down payment was 10%+ (drops after 11 years) | Yes, at 78% LTV | | Can request removal? | No, if down payment was under 10% | Yes, at 80% LTV |

Can you get rid of MIP or PMI once you have equity?

Yes for PMI, usually no for MIP. Under the Homeowners Protection Act of 1998, lenders must automatically cancel PMI once your loan balance reaches 78% of the home's original appraised value, and you can request cancellation yourself once you hit 80%, sometimes earlier if your home has appreciated and you get a new appraisal.

FHA MIP works differently. If your original down payment was less than 10%, MIP stays for the entire loan term no matter how much equity you build. If you put down 10% or more, MIP cancels after 11 years automatically. The only reliable way to drop MIP early on a low-down-payment FHA loan is to refinance into a conventional mortgage once you have enough equity. For a full breakdown of the mechanics and timing, see How PMI Works and When It Drops and the companion piece on How to Remove PMI Faster.

Does the type of insurance affect my monthly payment right now?

Yes, both MIP and PMI show up as a line item in your monthly payment, typically bundled into escrow along with taxes and homeowners insurance. If you're trying to understand why your payment includes an extra $100 to $200 a month beyond principal and interest, mortgage insurance is often the answer.

Checking your mortgage statement line by line will show you the exact premium amount and whether it's itemized separately from your escrow account. If you notice your payment jumped unexpectedly, it's worth checking whether an escrow shortage rather than a mortgage insurance change is the cause, covered in Escrow Payment Jumped? Here's Why and What to Do Next.

Is refinancing out of FHA to drop MIP worth it?

It can be, but only after running the actual numbers. If you have an FHA loan with permanent MIP and now have 20% equity, refinancing into a conventional loan eliminates mortgage insurance entirely. But refinancing has its own closing costs, typically 2% to 5% of the loan amount, so you need to calculate your break-even point.

Use a straightforward break-even calculation, like the one in How to Calculate Refinance Break-Even in 60 Seconds, before committing. If you're planning to move within a few years, the math often doesn't favor refinancing regardless of MIP savings, a scenario covered in Should I Refinance If I'll Move in 3 Years?.

FAQ

Do all FHA loans require MIP for the life of the loan?

No. Only FHA loans with an original down payment under 10% carry MIP for the full loan term. Loans with 10% or more down have MIP removed automatically after 11 years.

Can I avoid PMI with a smaller down payment on a conventional loan?

Sometimes, through lender-paid PMI or a piggyback second mortgage, but these options usually mean a higher interest rate or a second loan payment, so the total cost may not actually be lower.

Is MIP tax-deductible like PMI sometimes is?

Both have had deductibility rules change over the years depending on federal tax law and income limits, so check current IRS guidance or talk to a CPA rather than assuming either is deductible this tax year.

What credit score do I need to get the lowest PMI rate?

Generally a score of 760 or higher gets you the best PMI pricing, often near 0.5% annually, while scores in the 620–679 range can push PMI closer to 1.5% annually on the same loan amount.

If I put 20% down, do I avoid mortgage insurance entirely?

On a conventional loan, yes, 20% down eliminates PMI from day one. On an FHA loan, no, you still pay the 1.75% upfront MIP and an annual premium regardless of down payment size, though the annual rate is lower and it cancels after 11 years.

This is educational information, not financial advice. Talk to a licensed loan officer or CPA about how MIP or PMI applies to your specific loan and tax situation.