What is the difference between private mortgage insurance (PMI) and mortgage insurance premium (MIP)?

PMI is typically required when a borrower makes a down payment of less than 20% of the home's purchase price. It is a type of insurance that is purchased by the borrower and is intended to protect the lender in case the borrower defaults on the loan. PMI can be cancelled when the borrower reaches a certain level of equity in the property.

MIP, on the other hand, is typically required for certain types of government-backed loans, such as FHA (Federal Housing Administration) loans. It is a type of insurance that is paid for by the borrower and is intended to protect the government agency that is insuring the loan. Unlike PMI, MIP is not cancelable and typically must be paid for the entire life of the loan with the exception of certain situations:

• FHA loans endorsed on or after June 3, 2013 have different requirements for cancelling MIP. For these loans, MIP can be cancelled after 11 years for borrowers who put down less than 10% and after 5 years for borrowers who put down 10% or more.
• For FHA loans endorsed before June 3, 2013, the MIP can be cancelled when the borrower reaches 78% loan-to-value (LTV) ratio, meaning that the borrower must have 22% equity in the home.
• For FHA Streamline refinance loans, the MIP can be reduced if the borrower has not missed any payments and if the new loan results in a lower mortgage payment.

It's important to note that MIP cancellation is only applicable to the upfront and annual MIP and not the monthly mortgage insurance premium. It's always best to consult with a loan officer or a mortgage professional to understand the specific requirements and rules for canceling or reducing MIP on your FHA loan.