What Is LPMI? How Lender-Paid Mortgage Insurance Works

If you’re planning to buy a home with less than 20% down—whether you’re browsing a house for sale in Seattle, WA or checking out a home in Austin, TX—you’ll likely encounter mortgage insurance in some form. Most buyers are familiar with borrower-paid mortgage insurance (BPMI), the monthly PMI you pay until you reach 20% equity. But there’s another option your lender may offer: Lender-Paid Mortgage Insurance (LPMI).

LPMI can lower your monthly payment and eliminate monthly PMI charges, but it comes with long-term trade-offs. This Redfin article breaks down how LPMI works, how it compares to traditional PMI, who it’s best for, and how to decide if it makes sense for your situation.

What is lender-paid mortgage insurance (LPMI)?

Lender-paid mortgage insurance (LPMI) is when the lender pays your mortgage insurance premium upfront on your behalf so you don’t have a monthly PMI payment. In exchange, the lender charges you a higher interest rate for the life of the loan.

LPMI is essentially “built into” your mortgage rate. You save on monthly PMI, but you pay more in interest over time.

How LPMI works

LPMI can be structured in two main ways:

1. Single-premium LPMI (most common)

The lender pays a one-time upfront PMI premium, and you take on a slightly higher interest rate.

2. Lender-financed LPMI

The lender finances the cost into the loan or adjusts the rate even higher to cover ongoing premiums.

Regardless of structure, both forms of LPMI ultimately raise your interest rate to cover the cost. It comes down to a trade-off:

• No monthly PMI costs
• But a permanently higher mortgage rate

What is borrower-paid PMI (BPMI)?

Before comparing LPMI and BPMI, it’s helpful to understand how traditional PMI works.

Borrower-paid PMI (BPMI) is the standard form of mortgage insurance most buyers pay when they put less than 20% down on a conventional loan. With BPMI:

• The borrower pays a monthly PMI fee, added to the mortgage payment
• The cost depends on credit score, loan type, and down payment
• PMI can be removed later, usually when you reach 20% equity
• It offers lower interest rates because PMI is not built into the rate

This is the type of PMI most homebuyers encounter—it’s a separate line item on the monthly mortgage bill until the loan reaches a certain equity threshold. In some cases, you may be able to request PMI removal earlier with a new appraisal, depending on your lender’s guidelines. Once removed, you continue paying the same lower interest rate.

LPMI vs. Borrower-Paid PMI (BPMI)

Here’s how LPMI stacks up against the more traditional PMI option most buyers encounter:

In most scenarios, BPMI is more cost-effective over the life of the loan, while LPMI can be beneficial short term if you’re focused on monthly affordability.

Example: LPMI vs. BPMI Cost Comparison

Scenario:

• $450,000 purchase price
• 5% down ($22,500)
• 30-year fixed mortgage
• Buyer has good credit

With BPMI

• Interest rate: 6.5%
• Monthly PMI: $140–$200 depending on credit
• PMI drops once you reach ~20% equity (approx. 5–8 years)

With LPMI

• Interest rate: 6.875%
• No monthly PMI
• Higher rate increases interest paid over time
• No ability to remove the higher rate

In the first 2–3 years, the LPMI option may slightly reduce monthly costs, but not always—your PMI rate determines whether LPMI actually lowers the payment. Over the life of the loan, BPMI almost always wins financially.

Use Redfin’s mortgage calculator to estimate how PMI affects your monthly payment and compare it with a higher-rate loan scenario.

Pros and cons of LPMI

Pros

• No monthly PMI payment — reduces your upfront housing costs
• Potentially lower monthly payment compared to loan with BPMI
• May help you qualify more easily since the monthly debt load is smaller
• Simpler payment structure with everything rolled into the mortgage rate

Cons

• Higher interest rate for the entire life of the loan
• No option to remove PMI — you can’t drop the higher rate once you hit 20% equity
• Likely more expensive long-term
• Refinancing may be needed to eliminate the higher rate

When LPMI might be a good choice

LPMI can make sense if:

• You want the lowest monthly payment right now
• You’re confident you’ll refinance within a few years
• You don’t plan to keep the mortgage long-term
• You need lower DTI to qualify for the loan
• You prefer a predictable, all-in monthly payment without PMI charges

When LPMI is not a good idea

LPMI is usually NOT the right choice if:

• You plan to stay in the home long term
• You want the ability to remove PMI later
• You prefer lifetime savings over short-term savings
• Your credit score qualifies you for low-cost monthly PMI (often cheaper than LPMI)

How to decide if LPMI is worth it

Before choosing LPMI, ask yourself:

• How long will I keep this mortgage? If you expect to refinance or sell within a few years, LPMI may help you save short-term cash.

• What’s my PMI cost? If your PMI quote is low (especially with strong credit), BPMI is usually better

• Do I care more about monthly affordability or long-term cost?

1. 1. • LPMI = lower monthly payment now
      • BPMI = likely lower overall cost

• Can I qualify more easily with LPMI? No PMI may improve debt-to-income ratios.

Alternatives to LPMI

If you’re trying to avoid or reduce PMI, here are other paths:

• Split-premium PMI: Pay part of PMI upfront and part monthly.
• Single-premium BPMI (borrower-paid): You pay a single upfront PMI fee without raising the interest rate.
• Putting 20% down: The only way to avoid PMI completely.
• Piggyback loan (80/10/10): Second mortgage reduces PMI need, but comes with its own costs.

Frequently asked questions about lender-paid mortgage insurance

1. Can you remove LPMI?

No. Because the cost is built into the rate, the only way to eliminate it is to refinance.

2. Does LPMI require good credit?

Yes. Rates adjust based on credit, and LPMI can get expensive for borrowers with lower scores.

3. Is LPMI available on FHA or VA loans?

No. LPMI applies to conventional loans only.

4. Does LPMI affect closing costs?

Not directly—cost is built into the rate rather than paid upfront.