PMI vs. MPI Explained: Understanding the Difference in Mortgage Insurance Types

Are you confused about the types of mortgage insurance you might need when buying a home? You're not alone. Many homeowners confuse Private Mortgage Insurance (PMI) with Mortgage Protection Insurance (MPI), but these are two very different types of coverage.

Lenders usually require PMI when your down payment is less than 20%. It protects the lender if you default on your loan, not you as the homeowner. MPI, on the other hand, is optional insurance for homeowners. It covers your mortgage payments or pays off your mortgage if you lose your job, become disabled, or pass away. Instead of safeguarding the lender's interests, MPI protects you. But do you really need it?

Understanding these differences can help you make smarter choices and avoid unnecessary costs as a homeowner.

What Is Mortgage Insurance?

There are several types of mortgage insurance, including Private Mortgage Insurance (PMI) and Mortgage Protection Insurance (MPI). It's common for homeowners to mistakenly think that PMI will cover their mortgage payments if they lose their job, become disabled, or die. But this isn't correct. PMI is designed to protect the lender, not the homeowner. On the other hand, MPI will cover your mortgage payments if you lose your job or become disabled, or it will pay off the mortgage when you die.

PMI vs. MPI Quick Comparison Table

Private Mortgage Insurance (PMI): Requirements, Costs, Cancellation

PMI will reimburse the mortgage lender if you default on your loan and your house isn't worth enough to repay the debt in full through a foreclosure sale. PMI has nothing to do with job loss, disability, or death, and it won't pay your mortgage if one of these things happens to you.

When Is PMI Required for Conventional Loans?

With a conventional loan, if your down payment on your home is less than 20%, your lender will most likely require you to get PMI.

How to Avoid Private Mortgage Insurance

You can avoid paying PMI by putting 20% or more down when taking out a mortgage loan. Again, if you put down less and get a conventional mortgage, your lender will require PMI.

How to Cancel PMI: Federal Law and Equity Rules

Once your mortgage balance reaches 80% of the home's value when you bought it, contact your mortgage servicer and let them know you want to discontinue the PMI premiums. Generally, you must have sufficient equity (at least 20%) and a good payment history to cancel PMI.

Under federal law, a lender must inform you at closing how many years and months it will take for you to reach that 80% level so you can cancel PMI. Even if you don't request PMI cancellation, the lender must automatically cancel it once the balance reaches 78%. (12 U.S.C. § 4901 (2025).)

PMI Costs: How Much Will You Pay?

The cost of PMI varies but is usually around half of 1% of the loan amount. But it might be as much as 2%. So, it's well worth the effort to get rid of it as soon as you can, if you can.

Also, keep in mind that mistakes often happen, and the servicer might not remember to cancel PMI once your loan balance gets to 78% without you reminding them.

Pros and Cons of PMI

Because of the protection that PMI provides lenders, it encourages them to approve loans for those with less than 20% to put down. So, the main upside of PMI is that it allows a borrower who doesn't have a 20% down payment to buy a home. You can buy property with a smaller down payment, perhaps as low as 3% or 5% of the home's purchase price. Also, another benefit is that PMI is temporary; you can cancel it once you get to 20% equity.

On the downside, paying for PMI increases your monthly mortgage payment. Until you can cancel it, you might have to pay hundreds of dollars more each month. Another downside to PMI is that you don't get any benefit from it (unlike MPI, see below). Again, PMI protects the lender, not you. If you default, PMI ensures that the lender will get its money back.

Mortgage Protection Insurance (MPI): Coverage, Costs, and Benefits

Unlike PMI, MPI protects you as a borrower. This insurance typically covers your mortgage payment for a certain amount of time if you lose your job or become disabled, or it pays the mortgage off when you die.

Is MPI Required by Lenders?

While many lenders require PMI when a borrower's down payment is less than 20%, MPI is voluntary.

How Much Does MPI Cost? Price Factors and Quotes

The cost of MPI varies widely depending on various factors like age, health, lifestyle, location, and occupation, though you can expect to pay around $50 per month. But premium costs can range from $20 to $100 (or more) per month. Older individuals and those with medical issues typically pay higher premiums than younger, healthy individuals.

The cost might also vary based on your occupation and individual circumstances. You might have to pay more if you have a risky job or dangerous hobbies. The cost also typically depends on how long the coverage will last and the coverage amount. The higher the coverage amount and the longer the duration, the more you'll probably have to pay. Also, the cost depends on what insurance company you choose.

If you decide MPI would be beneficial, get quotes from several insurance providers to find out exactly how much you'd have to pay in premiums. Review the quotes carefully, including policy terms, costs, and conditions.

Pros and Cons of MPI

The main upside to MPI is that your mortgage will get paid if you lose your job, become disabled, or have some other unfortunate circumstances that make it impossible to make your mortgage payments. That way, you can be sure to avoid foreclosure. (You might consider getting life insurance or another type of insurance instead. However, it's usually pretty easy to qualify for MPI compared to disability insurance or life insurance.)

Having MPI will cost you money that you don't need to spend. Again, unlike PMI, this type of insurance is purely voluntary. So, it's an expense you don't have to pay. If you're in good health, relatively secure in your job, have no unusual lifestyle risks, and are adequately otherwise insured—for example, you have life insurance—you might not want or need to purchase this type of insurance. But if you think your particular circumstances or risk factors could warrant getting this type of insurance, consider contacting an insurance agent.

How to Cancel MPI

It's usually easy to cancel MPI. Follow the specific steps your policy provides. Be sure to comply with any notice requirements and check to see if you'll have to pay a penalty or fee. MPI policies usually you to cancel at any time, but some have specific rules for how and when you can end coverage.

After reviewing the guidelines in your policy, contact your insurance company.

PMI vs. MPI vs. Mortgage Insurance Protection (MIP)

Get Help With Your Mortgages and Home Buying

To learn more about mortgages and different aspects of homeownership, get Nolo's Essential Guide to Buying Your First Home by Ilona Bray, J.D. and Attorney Ann O'Connell.