Monthly PMI is a standard requirement for conventional loans with less than 20% down, but it is not the only way to structure mortgage insurance. Single premium mortgage insurance (SPMI) allows the borrower to pay the entire insurance premium upfront, either at closing with cash or by rolling it into the loan balance. This eliminates the monthly PMI line item and can simplify the payment structure.
How Single Premium MI Works
Instead of paying PMI monthly over time, the borrower pays a one-time premium at closing. The premium amount depends on the LTV ratio, FICO score, and loan term, and is quoted as a percentage of the loan amount. A borrower might pay 1.5% to 2.5% of the loan amount upfront to eliminate monthly PMI. If financed into the loan, the premium becomes part of the loan balance and the borrower pays interest on it over the life of the loan.
Comparing Single Premium to Monthly MI
The break-even analysis determines which structure is more cost-effective. If the borrower plans to stay in the home long enough, the single premium often comes out ahead because monthly PMI compounds over many years. If the borrower plans to sell or refinance within 3 to 5 years, monthly PMI may cost less in total because they exit before paying all of it. Single premium MI is not refunded if the loan pays off early, which is a critical downside to understand.
- ✦Premium financed into loan: no out-of-pocket cost at closing but increases loan balance and adds interest cost
- ✦Premium paid in cash: eliminates monthly MI immediately; not refundable on early payoff or refinance
- ✦LPC (lender-paid MI): differs from single premium; lender pays the MI and charges a higher rate instead
- ✦Best fit: borrowers who plan to stay long-term and want to simplify their payment structure
Aria can run a side-by-side comparison of monthly MI, single premium, and LPMI structures for any loan scenario. Ask at vicariointel.com.
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