Lender-Paid Mortgage Insurance (LPMI): How It Works

Lender-paid mortgage insurance (LPMI) is private mortgage insurance on a conventional loan that your lender pays for in exchange for a higher interest rate. You get no monthly PMI charge, but the higher rate lasts for the life of the loan. Also, unlike borrower-paid PMI, LPMI can’t be canceled when you reach 20% equity. It ends only when you refinance, sell or pay off the loan.

That makes LPMI a bet on how long you’ll keep the loan. Below, a worked example compares it with borrower-paid mortgage insurance (BPMI), and we cover the disclosure your lender must give you.

What is lender-paid mortgage insurance?

Conventional loans with less than 20% down generally require private mortgage insurance (PMI). PMI protects the lender if you stop making payments. Someone has to pay the premium, and LPMI is one way to do it.

With LPMI, the lender pays the mortgage insurer, often as one premium at closing. Then it charges you a higher rate to recover that cost. So you still pay for the coverage, but through interest instead of a separate line on your statement. The Homeowners Protection Act (HPA) defines lender-paid mortgage insurance as PMI “payments for which are made by a person other than the borrower.”

Other ways to pay for PMI

• Borrower-paid monthly PMI (BPMI): the usual setup. A monthly premium is added to your payment, and you can drop it once you build enough equity.
• Borrower-paid single premium: you pay the whole premium upfront at closing, so there’s no monthly PMI charge.
• Split premium: you pay part of the premium at closing, plus a smaller monthly premium.

A single premium is a way of structuring the premium. You or the lender can pay it. When the lender pays it and raises your rate to cover the cost, that’s LPMI.

LPMI applies only to conventional loans. FHA loans carry their own mortgage insurance premium (MIP), and VA and USDA loans have their own fees.

How much LPMI raises your rate

No standard LPMI rate exists. The rate increase depends on your credit score, your down payment (your loan-to-value ratio, or LTV), the loan amount and the lender’s own pricing. A lower score or a smaller down payment generally means a bigger increase, just as it means a higher monthly PMI premium.

For context, Freddie Mac’s Primary Mortgage Market Survey put the average 30-year fixed rate at 7.24% on October 29, 2026, up from 6.17% a year earlier. An LPMI quote will sit above the rate the same lender offers you with borrower-paid PMI. You can check today’s averages on our current mortgage rates page.

The only reliable way to price LPMI is to ask the lender for both quotes side by side:

1. Get the LPMI and BPMI quotes on the same day, for the same loan amount and the same points.
2. Compare the rate, the principal and interest payment, the monthly PMI on the BPMI quote, and the cash to close.
3. Ask for the month when PMI on the BPMI quote is scheduled to reach 80% of the original value. That’s when you could request cancellation.
4. Check the APR as well. Under Regulation Z, mortgage insurance premiums count as finance charges, so the APR reflects PMI. However, the APR assumes you keep the loan for its full term, so it won’t show which option costs less over the years you actually keep it.

If the LPMI rate looks too high, you can also ask what it would cost to buy it down with discount points.

LPMI vs. BPMI: a cost example

Say a buyer purchases a $400,000 home with 5% down ($20,000) and takes a $380,000 30-year fixed loan. The rates and the PMI premium below are examples, not quotes. Property taxes and homeowners insurance are left out of both payments.

At first, LPMI saves about $61 a month. The question is how long that lasts, because the BPMI borrower can eventually drop PMI and keep the lower rate.

How the long-run cost compares

The comparison below counts interest plus PMI paid, along with the unpaid balance. That way it captures the faster principal paydown at the lower BPMI rate.

In the first scenario, the BPMI loan reaches 80% of the original value in month 133, about 11 years in. LPMI is ahead by about $2,311 after 5 years and $4,575 after 10 years. But over the full 30 years, LPMI costs about $13,986 more.

In the second scenario, the home’s value rises and the servicer lets the BPMI borrower drop PMI after 5 years. As a result, LPMI falls behind in month 80 and costs about $4,925 more after 10 years.

So LPMI wins when you sell or refinance within roughly the first 6 to 15 years, depending on how soon you could drop PMI. It loses if you keep the loan long. If you’re weighing both options now, compare offers from a few lenders.

Removing PMI vs. living with LPMI

The biggest difference between the two options is how they end.

How borrower-paid PMI ends

The Homeowners Protection Act gives you three exits from borrower-paid PMI on a single-family principal residence:

• Cancellation on request at 80%. You can ask your servicer in writing to cancel PMI once your balance is scheduled to reach 80% of the original value. Extra payments that get you there sooner count too. You need a good payment history, no second lien and evidence that the value hasn’t fallen below the original value.
• Automatic termination at 78%. PMI must end when your balance is scheduled to reach 78% of the original value, as long as you’re current.
• Final termination at the midpoint. If PMI hasn’t ended sooner, it must end the month after the midpoint of the loan term (15 years on a 30-year loan), if you’re current.

“Original value” means the lower of the sales price or the appraised value when you bought. The CFPB explains these rights in plain terms.

Rising home values can get you out sooner. For loans Fannie Mae owns, its Servicing Guide lets a borrower with a one-unit principal residence or second home end PMI based on a new valuation. The LTV must be 75% or less if the loan is 2 to 5 years old, or 80% or less after 5 years. You also need a clean recent payment record. Other loan owners set their own rules, so ask your servicer. Our guide on how to remove PMI on a conventional loan walks through the request.

How lender-paid mortgage insurance ends

None of those cancellation and termination rights apply to lender-paid mortgage insurance. The HPA says so directly. Your higher rate stays until you refinance, sell or pay off the loan.

Refinancing out of LPMI means qualifying again at the rates available then and paying closing costs. If rates are higher when you’d like to refinance, you may keep the LPMI rate longer than you planned.

The lender-paid mortgage insurance disclosure

The HPA requires a specific LPMI disclosure. No later than the date of your loan commitment, the lender must give you a written notice explaining that:

• LPMI can’t be canceled by you, while borrower-paid PMI could be canceled or end automatically.
• The interest rate is usually higher with LPMI than with borrower-paid PMI.
• LPMI ends only when the loan is refinanced, paid off or otherwise terminated.
• Both options have benefits and drawbacks. The notice must include a generic cost comparison over a 10-year period, using prevailing interest and home appreciation rates.

Later, within 30 days after the date your PMI would have ended under the 78% rule, your servicer must send a second notice. It tells you that you may want to review financing options that could eliminate PMI. Both requirements are in 12 U.S.C. 4905.

The 10-year comparison in the notice is generic. Therefore, run your own numbers using your actual quotes and how long you expect to stay.

LPMI vs. FHA

FHA is the other common path for a buyer with a small down payment. Using the same $400,000 home, here’s how an FHA loan with 3.5% down compares with the LPMI loan above. The FHA rate is an example, not a quote. Taxes and homeowners insurance are left out.

In this example, FHA needs $6,000 less cash for the down payment. FHA’s annual MIP rates also don’t change with your credit score, and many lenders accept lower scores on FHA loans. However, the FHA payment runs about $67 a month higher, and the MIP lasts for the life of the loan at this down payment.

The annual MIP figures come from HUD Mortgagee Letter 2023-05. For more, see our FHA down payment guide and how to get rid of mortgage insurance on an FHA loan.

Pros and cons of lender-paid mortgage insurance

Pros

• A lower monthly payment at first, about $61 a month in the example above.
• No PMI line item on your statement.
• A lower payment can help your debt-to-income ratio when you’re close to a lender’s limit.
• It can cost less overall if you expect to sell or refinance within several years.

Cons

• You can’t cancel it. The higher rate stays even after you reach 20% equity, until you refinance or sell.
• It costs more if you keep the loan for a long time.
• Quotes are harder to compare, because the cost is built into the rate.
• If rates rise and you can’t refinance, you’re stuck with the higher LPMI rate.

When lender-paid mortgage insurance makes sense

LPMI tends to fit when:

• You expect to move within several years.
• You expect to refinance within a few years.
• The monthly payment is the main thing limiting how much you can borrow.

It tends to cost more when:

• You plan to stay in the home for a long time.
• Your home is likely to gain value, which could let you drop BPMI early.
• You choose a 15-year loan, since the balance falls fast and PMI would come off sooner anyway.

Alternatives to compare

• Monthly PMI: often the cheaper long-run choice. See how much PMI costs.
• Piggyback loan: an 80/10/10 piggyback mortgage pairs a first mortgage at 80% with a second loan, so the first mortgage needs no PMI.
• Low-down-payment programs without PMI: some lenders offer 3% down loans with no mortgage insurance, usually with income or location limits.
• HomeReady: Fannie Mae’s HomeReady program is aimed at low-down-payment buyers who meet its income limits.

Lender-paid mortgage insurance FAQ

What is LPMI?

LPMI stands for lender-paid mortgage insurance. The lender pays the PMI premium on your conventional loan and charges you a higher interest rate to cover it. You have no monthly PMI charge, but the higher rate lasts until you refinance or sell.

Is LPMI better than BPMI?

It depends on how long you keep the loan. In the example above, LPMI came out ahead for the first 6 to 15 years, depending on how soon the borrower could drop PMI. After that, borrower-paid PMI cost less.

Can you remove lender-paid mortgage insurance?

No. The HPA cancellation and termination rights don’t apply to LPMI. The only way to end it is to refinance, sell or pay off the loan.

Does LPMI need a bigger down payment?

It depends on the lender and the loan program. Some lenders offer LPMI at the same down payments as borrower-paid PMI, while others limit it. See our guide to conventional loan down payments for the program minimums.

What is an LPMI disclosure?

It’s a written notice the HPA requires before your loan commitment. It explains that you can’t cancel LPMI, that it usually carries a higher rate, and how its costs compare with borrower-paid PMI over 10 years.

Next step: get both quotes

Lender-paid mortgage insurance trades a lower payment now for a higher rate you can’t shed without refinancing. It tends to pay off if you’ll move or refinance within several years, and it tends to cost more if you stay put.

Before you choose, ask your lender for an LPMI quote and a BPMI quote on the same day. Then compare the payments and the month PMI could come off against how long you expect to keep the loan.