It is often presented as the option with no mortgage insurance. There is mortgage insurance. It has been moved into your interest rate, where it stays for thirty years instead of eight.
Short version: lender-paid PMI is the cheapest of the three ways to cover mortgage insurance for about the first three years, and the most expensive after roughly eight and a half. On a $315,000 loan held to term it costs $23,467 more than paying the premium upfront.
If your down payment is under 20% on a conventional loan, mortgage insurance is required. What is not fixed is how you pay for it, and lenders will usually offer some version of three structures.
They are three prices for the same product, and they are not close to each other once you extend the timeline.
A $350,000 house with 10% down, so a $315,000 loan at 6.5% over thirty years. Monthly PMI at 0.40% a year. The LPMI version prices the rate at 6.875%. The single premium is 1.5% of the loan, $4,725 at closing.
| Structure | Monthly payment | Cash at closing | When it ends |
|---|---|---|---|
| Monthly BPMI | $2,096 | — | Month 95 |
| Lender-paid | $2,069 | — | Never |
| Single premium | $1,991 | $4,725 | Paid already |
Look at the monthly column and lender-paid beats standard monthly PMI by $27. That single comparison is what the structure is usually sold on, and taken alone it is true.
Now extend it. Total cost means every payment made, plus the balance still owed, plus any cash handed over at closing:
| 3 yrs | 8 yrs | 30 yrs | |
|---|---|---|---|
| Monthly BPMI | $64,171 | $165,381 | $411,740 |
| Lender-paid | $63,949 | $164,911 | $429,957 |
| Single premium | $65,116 | $160,131 | $406,490 |
Lender-paid leads in the first column and finishes last in the final one, $23,467 behind. The structure marketed as having no mortgage insurance is the most expensive way to buy mortgage insurance for anyone who stays.
Because one of these three has an expiry date and the other two do not.
Monthly PMI stops. On this loan it stops in month 95, once the balance reaches 80% of the original value and you send the cancellation request. Eight years of $105, and then nothing.
A rate increase does not stop. The extra 0.375% applies to every payment for thirty years, and it applies to the whole balance rather than to a premium schedule. Charging a smaller amount for nearly four times as long is how a cheaper monthly payment turns into a more expensive loan.
The two crossings are worth memorising:
| Comparison | Flips at | Before | After |
|---|---|---|---|
| Single vs. monthly | 45 mo | Monthly | Single |
| Monthly vs. lender-paid | 101 mo | Lender-paid | Monthly |
Under roughly four years, keep the cash and pay monthly. Past eight and a half, lender-paid has become the worst of the three. In between is the only zone where the answer is genuinely close.
Find your own cancellation date
The crossover depends on when your PMI would end. Enter your loan and see all four routes out.
Every other form of mortgage insurance has an exit. Monthly PMI cancels at 80%, terminates at 78%, and can sometimes be removed early with a new appraisal. Lender-paid has none of that.
There is no cancellation request for a rate. Reaching 80% equity does nothing. Reaching 50% equity does nothing. Your house doubling in value does nothing. The rate you signed is the rate you have, and the only way out is a new loan — which means paying closing costs again, at whatever rates exist on that day.
That is the real cost of the structure and it is not visible in any of the tables above, because it is a risk rather than a number. If rates are higher when you want out, you are choosing between an inflated rate and an even worse one.
It is a legitimate product with a narrow fit. It wins when:
What does not qualify as a reason is the absence of a premium line on the statement. The charge is still there. It has been renamed.
Single premium wins most of the timeline above, but it has its own trap: it is usually not refundable. Pay $4,725 at closing, sell in year two, and that money is gone — you will have spent $4,725 to avoid $2,520 of monthly premium.
Some policies are partially refundable and cost slightly more. If you are considering this route, ask which type you are being quoted, because the two are not the same product and the difference only matters if your plans change.
Two other things worth asking. A seller credit or lender credit can sometimes cover a single premium, which changes the arithmetic entirely. And rolling the premium into the loan rather than paying cash converts it into thirty years of interest — the same mistake in a different costume, covered in what rolling costs into the loan actually costs.
Lenders do not always volunteer all three. Ask for a Loan Estimate on each structure, with the same rate lock period and the same loan amount, and compare them at the horizon you actually expect — not at thirty years unless you truly mean thirty years.
Then check one number that none of the quotes will show you: the month your monthly PMI would cancel. That single date decides which of the three columns above applies to you. The routes and the timing are in how to remove PMI, the pricing side is in how much does PMI cost, and if you have not bought yet, is it worth waiting to avoid PMI covers the larger version of the same question.