LPMI vs BPMI: Which Saves More?

Updated upon publication of this page.

Lender-Paid Mortgage Insurance can look attractive because there is no PMI line item on your payment. But you still pay for it through a higher interest rate for the entire life of the loan. Here is how to figure out which option actually costs less.

Break-even math Two worked examples Decision framework

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The two choices explained

Borrower-Paid Monthly PMI (BPMI)

You pay a monthly PMI premium on top of your mortgage payment. The premium is based on your credit score and LTV. BPMI is governed by the Homeowners Protection Act, which gives you the right to cancel at 80% LTV and requires automatic termination at 78% LTV.

Lender-Paid PMI (LPMI)

The lender pays the PMI premium upfront to the insurer. In exchange, your interest rate is set 0.25 to 0.75 percentage points higher than it would otherwise be. There is no PMI line item on your payment, but the higher rate applies for the entire life of the loan. LPMI cannot be cancelled; the only way to escape it is to refinance into a new loan.

The math: when LPMI wins and when it loses

LPMI wins when you refinance or sell before the higher interest rate accumulates to more than what BPMI would have cost over the time until BPMI cancels.

Rough rule of thumb: on a 30-year loan, LPMI typically wins if you stay in the loan less than 5 to 7 years. Beyond that, BPMI usually costs less because BPMI cancels and LPMI's rate penalty keeps going.

Example 1: Good credit, short stay

$400,000 loan, 740 FICO, 10% down (90% LTV), 30-year term.

BPMI rate: approximately 0.41% annual, so about $137 per month, cancels at month 100 (~8.3 years) on original schedule.
LPMI rate add: 0.375% to the mortgage rate (say 6.75% becomes 7.125%).
Monthly payment with BPMI (6.75% + PMI): $2,595 + $137 = $2,732
Monthly payment with LPMI (7.125%, no PMI): $2,695
LPMI saves $37 per month during PMI years.

After BPMI cancels at month 100:

BPMI payment drops to $2,595. LPMI stays at $2,695. Now BPMI saves $100 per month.

Break-even: LPMI's $37 monthly savings for 100 months = $3,700 saved. BPMI's $100 monthly savings after that reaches $3,700 at month 137 (3 years after cancellation). If you stay in the loan less than ~11 years total, LPMI wins. Beyond that, BPMI wins.

Example 2: Lower credit, high PMI

$300,000 loan, 660 FICO, 10% down (90% LTV), 30-year term.

BPMI rate: approximately 1.07% annual, so about $268 per month at origination.
LPMI rate add: say 0.75% (6.75% becomes 7.50%).
Monthly payment with BPMI (6.75% + PMI): $1,946 + $268 = $2,214
Monthly payment with LPMI (7.50%, no PMI): $2,098
LPMI saves $116 per month during PMI years.

With higher BPMI, LPMI wins for longer (even up to 10-12 years at the extreme). For borrowers with lower credit scores who face very high BPMI rates, LPMI is often the better deal.

Side-by-side comparison

Feature	BPMI	LPMI
Who pays premium	You (monthly)	Lender (upfront, baked into rate)
Monthly cost structure	Base payment + PMI line item	Higher base payment, no PMI line item
Rate impact	None	+0.25% to +0.75%
Cancellable?	Yes, at 80% LTV (HPA)	No, only via refinance
Auto-terminates at 78%?	Yes	No
Tax deductible?	Not currently (expired after 2021)	Rate add may be deductible as mortgage interest
Credit score sensitivity	High	Lower (rate add less variable)
Best for	Long-term stayers, mid-high credit	Short-term stayers, lower credit, cash-flow focus
Governed by	Homeowners Protection Act	No federal cancellation protection

Hidden factor: tax treatment

Under current federal tax law (post-2021), BPMI is not tax-deductible for most borrowers. LPMI's rate penalty, by contrast, becomes part of your mortgage interest, which may be deductible if you itemize and are within the $750,000 mortgage debt limit set by the 2017 Tax Cuts and Jobs Act. For borrowers who itemize at the 24% or higher federal bracket, this can tilt the math toward LPMI by 10-20%. Consult a tax professional for your situation.

When LPMI is the right choice

You plan to refinance or sell within 5-7 years.
Your credit is in the 620-680 range where BPMI is very expensive.
You are near the top of your DTI limit and need the lower monthly payment to qualify.
You itemize taxes and are in a high federal bracket.
You hate the idea of an extra line item on your mortgage statement (behavioral preference).

When BPMI is the right choice

You plan to stay in the loan more than 7-10 years.
Your credit score is 740+ where BPMI rates are already low.
You plan to make extra principal payments to accelerate the 80% cancellation.
You value the flexibility of being able to cancel PMI without refinancing.
You do not itemize taxes.

How to decide

Ask your loan officer for both quotes side by side. They should give you:

The BPMI monthly premium and the mortgage rate
The LPMI mortgage rate (with no PMI)
Each option's monthly payment

Then multiply the difference by your expected months in the loan and compare. Add the BPMI monthly cost for the months before cancellation (typically 60-100 months on a 30-year loan with 10-15% down). Our PMI removal calculator gives you the cancellation month.

Frequently asked questions

Can I switch from LPMI to BPMI later?

No. The only way out of LPMI is to refinance into a new loan. At that point, if you have 20% equity, you have no PMI at all. If you still have less than 20% equity, you can choose BPMI on the new loan.

Does LPMI affect my ability to deduct mortgage interest?

The entire mortgage rate (including the LPMI add-on) is treated as mortgage interest for tax purposes. If you itemize and are within the deductible mortgage debt limit, the LPMI rate add may be deductible along with the rest of your interest. Confirm with a tax professional.

Why would a lender push LPMI?

Some lenders do market LPMI heavily. Reasons vary: a higher rate means more interest income for them, borrowers like the "no PMI" marketing, and the lender locks in the rate penalty permanently (no cancellation reduces lender revenue). Shop both options with multiple lenders.

Is split-premium PMI related to LPMI?

No, split-premium is a different structure where you (the borrower) pay a smaller upfront premium plus reduced monthly premiums. It is a form of BPMI, not LPMI. The lender does not subsidize anything.