May 24, 2015

What is Lender Paid Mortgage Insurance (LPMI)?

I'm familiar with PMI or Private Mortgage Insurance.    Thats an extra fee you pay if you don't have a full 20% down to cover the lenders risk of you defaulting.   However I've also recently heard of Lender Paid Mortgage Insurance (LPMI) as an alternative.   The "lender paid" part sounds good, right?    But of course its not free.  

Basically LPMI is handling the same function as PMI by instead paying through an increased mortgage interest rate rather than a separate fee.    You might get a cheaper mortgage payment this way versus going with PMI.   However since PMI should drop off you may pay more in the long run with LPMI.

I'm not going to try and reinvent the wheel here, so here's 3 good articles on the topic :

Bankrate Lender-paid mortgage insurance: Pros, cons
Bigger Pockets  What Is LPMI? Lender Paid Mortgage Insurance
Wells Fargo Lender-Paid Mortgage Insurance (LPMI)

You might want to go with LPMI if you're in a higher tax bracket and you might move or refinance or pay off the loan before the full term of the loan.

PMI is likely better if you plan to stay in the home and keep the original mortgage long term.


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