Lender Paid Mortgage Insurance (LPMI) is a type of PMI insurance in which the lender pays the single premium at the time of insurance activation. They do not do this free of charge – lenders often either increase the interest rate or charge borrowers an origination fee to cover the cost. Because it is built into the loan, coverage remains in place for the life of the loan. Therefore, it can’t be canceled by the borrower when 78% equity in the home is reached as with BPMI, and the interest rate will not go down once 22% equity is accrued. Advantages of lender paid single premiums include:
- Lower monthly payment – The absence of a monthly MI payment often provides a lower monthly payment than Monthly or Split Premiums afford
- Ease of use – Because the borrower pays no upfront premium and no monthly payment, it’s easy to understand
Who should consider Lender Paid Mortgage Insurance (LPMI) Single Premiums?
Borrowers who want to:
- Minimize their monthly payment in the short term, even if it means forfeiting MI cancellation and the chance to reduce their monthly payment in the future
- Get the seller or builder to pay origination fees – especially in a buyer’s market
- Home buyers who intend to keep the mortgage for at least five to ten years