Mortgage Insurance Glossary

Updated upon publication of this page.

Clear definitions for the terms you'll encounter around PMI, FHA MIP, VA funding fees, and conventional mortgage financing.

30+ terms defined PMI, MIP, VA, USDA Plain-English

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Amortization

The process of paying off a loan over time through regular, fixed payments. Each payment is split between interest (which goes to the lender) and principal (which reduces your balance). Early payments are mostly interest; later payments are mostly principal. The amortization schedule is the table showing exactly how much goes where each month.

Appraisal

A professional estimate of a home's market value, performed by a licensed appraiser. Lenders require appraisals before closing a mortgage to ensure the home is worth at least what you're borrowing against it. Appraisals also come into play for PMI removal based on home appreciation.

Automatic PMI Termination

A right under the Homeowners Protection Act of 1998 that requires your lender to drop PMI without a request from you once your scheduled loan balance reaches 78 percent of the original home value, provided you're current on payments. This happens based on the original amortization schedule, not actual balance.

BPMI (Borrower-Paid Mortgage Insurance)

The standard form of conventional PMI, where you pay a monthly premium alongside your mortgage payment. Cancellable at 80 percent LTV under the Homeowners Protection Act.

Cancellation (PMI)

The borrower-initiated process of removing PMI when your loan balance reaches 80 percent of the original home value. Requires a written request and must be processed by the servicer within 30 days of receipt.

CFPB (Consumer Financial Protection Bureau)

The federal agency that enforces consumer protection laws in financial services, including the Homeowners Protection Act. If a servicer violates PMI cancellation rules, you can file a complaint at consumerfinance.gov/complaint.

Closing Costs

Fees paid at the closing of a real estate transaction, including loan origination fees, title insurance, appraisal, taxes, and insurance. Typically 2 to 5 percent of the purchase price. Upfront FHA MIP and VA funding fees can be included in closing costs or financed into the loan.

Conforming Loan

A mortgage that meets Fannie Mae or Freddie Mac guidelines, including loan size limits set annually by the Federal Housing Finance Agency. Most conventional loans are conforming. Non-conforming (jumbo) loans exceed these limits and have different pricing.

Conventional Loan

A mortgage not insured or guaranteed by the federal government. Conventional loans are the opposite of government loans (FHA, VA, USDA). Most conventional loans with less than 20 percent down require PMI.

Down Payment

The portion of the home purchase price you pay in cash at closing. Down payment is the difference between the purchase price and your loan amount. A 20 percent down payment generally eliminates the need for PMI.

DTI (Debt-to-Income Ratio)

Your total monthly debt payments divided by your gross monthly income. Lenders use DTI to assess whether you can afford a mortgage. Most conventional loans require DTI below 45 percent, with some flexibility up to 50 percent.

Equity

The difference between your home's current market value and your remaining loan balance. Equity grows as you pay down principal and as the home appreciates. 20 percent equity (an 80 percent LTV) typically eliminates PMI.

Escrow

An account held by your mortgage servicer to pay property taxes, homeowners insurance, and sometimes PMI on your behalf. You deposit a portion of these costs monthly as part of your mortgage payment, and the servicer disburses them when due.

Fannie Mae

Federal National Mortgage Association, a government-sponsored enterprise that buys mortgages from lenders and packages them into mortgage-backed securities. Fannie Mae guidelines set the standards for most conventional loans in the United States.

FHA (Federal Housing Administration)

A government agency within HUD that insures mortgages for approved lenders. FHA loans allow lower down payments (3.5 percent) and more flexible credit requirements than conventional loans, but require MIP (Mortgage Insurance Premium).

Freddie Mac

Federal Home Loan Mortgage Corporation, a government-sponsored enterprise similar to Fannie Mae. Together Fannie Mae and Freddie Mac guarantee more than half of all U.S. residential mortgages.

HPA (Homeowners Protection Act of 1998)

Federal law (12 U.S.C. § 4901) that establishes PMI cancellation rights for conventional borrowers. Requires lenders to automatically terminate PMI at 78 percent LTV and allow borrower-requested cancellation at 80 percent LTV.

HELOC (Home Equity Line of Credit)

A revolving line of credit secured by your home equity. Often used as the second mortgage in piggyback loan structures. HELOCs usually have variable interest rates tied to the prime rate.

IRRRL (Interest Rate Reduction Refinance Loan)

A VA streamline refinance program that allows existing VA borrowers to refinance to a lower rate without a new appraisal, credit check, or income verification. Also known as the VA Streamline Refinance. Carries a 0.50 percent funding fee.

Jumbo Loan

A mortgage that exceeds the conforming loan limit set by the FHFA. Jumbo loans typically have stricter credit requirements and may use different PMI pricing (often requiring higher down payments to avoid PMI entirely).

Loan-to-Value Ratio (LTV)

Your loan amount divided by the home's value, expressed as a percentage. For example, a $320,000 loan on a $400,000 home is 80 percent LTV. LTV is the single most important factor in determining whether PMI is required and how much it costs.

LPMI (Lender-Paid Mortgage Insurance)

A PMI structure where the lender pays the PMI premium upfront in exchange for charging you a higher interest rate (typically 0.25 to 0.75 percent higher) for the life of the loan. Not cancellable without refinancing.

MIP (Mortgage Insurance Premium)

The FHA equivalent of PMI. Includes an upfront MIP (1.75 percent of loan) and annual MIP (0.15 to 0.75 percent of loan balance). MIP cancellation rules differ from PMI and depend on when the loan was originated and the original LTV.

Original Value

The lesser of the home's purchase price or appraised value at the time of loan origination. HPA cancellation rights are based on original value, not current value. Appreciation-based cancellation uses current value.

Piggyback Loan

A secondary mortgage taken out simultaneously with the primary mortgage to avoid PMI. The most common structure is 80-10-10 (80 percent first mortgage, 10 percent second mortgage, 10 percent cash down).

PMI (Private Mortgage Insurance)

Insurance that protects the lender if a conventional borrower defaults. Required on most conventional loans with less than 20 percent down. Paid by the borrower monthly, upfront as a single premium, or in a split structure.

Principal

The outstanding balance on your mortgage loan. Each payment reduces the principal; principal reductions are what build your equity. PMI is calculated as a percentage of your declining principal balance.

Rate Card

The pricing grid used by a private mortgage insurer to determine PMI premiums. Rate cards are typically indexed by credit score and LTV, with surcharges for property type, occupancy, loan size, and other factors.

Servicer

The company that collects your mortgage payments and manages your loan after closing. Your servicer may be the same as your original lender or a different company. PMI cancellation requests go to your servicer.

Split-Premium PMI

A hybrid PMI structure combining a smaller upfront premium (0.5 to 1.5 percent of loan) with reduced monthly premiums. Can be useful if the seller pays closing costs or if you want lower monthly payments without full LPMI.

SPMI (Single-Premium Mortgage Insurance)

PMI paid as a one-time lump sum at closing instead of monthly. Often cheaper over the long run but not refundable if you sell or refinance early.

Upfront MIP (UFMIP)

The one-time 1.75 percent premium charged on all FHA loans at closing. Usually financed into the loan rather than paid in cash.

USDA Loan

A mortgage program backed by the U.S. Department of Agriculture for rural and some suburban properties. Allows 100 percent financing (zero down) with a 1 percent upfront guarantee fee and 0.35 percent annual guarantee fee.

VA Loan

A mortgage guaranteed by the U.S. Department of Veterans Affairs for eligible service members, veterans, Reservists, and surviving spouses. Allows 100 percent financing with no PMI, but charges a one-time funding fee (1.25 to 3.30 percent).

VA Funding Fee

A one-time fee charged on VA loans in lieu of PMI. Ranges from 0.50 percent (IRRRL) to 3.30 percent (subsequent-use purchase with no down payment). Governed by 38 CFR 36.4313.