Lender-Paid Mortgage Insurance

Lender-paid mortgage insurance, often called LPMI, is private mortgage insurance on a conventional loan where the lender pays the premium instead of you paying a separate monthly PMI charge. You still pay for it, usually through a higher interest rate. The key difference is that LPMI generally cannot be cancelled. Under the Homeowners Protection Act, the federal PMI cancellation and automatic termination rules do not apply to lender-paid mortgage insurance, and it ends only when the loan is refinanced, paid off or otherwise terminated (12 U.S.C. 4905).

How LPMI works

On a conventional loan above 80 percent loan-to-value, mortgage insurance is generally required. It can be paid in different ways: monthly by you, as a single premium, or by the lender. With LPMI, the lender buys the coverage and builds the cost into the rate or pricing of your loan (Fannie Mae B7-1-03). Your payment has no separate mortgage insurance line, but the rate is higher than the same loan with borrower-paid PMI. The CFPB explains the trade-off (CFPB).

The required federal notice

If a lender offers LPMI, the Homeowners Protection Act requires a written notice by the time of loan commitment explaining that:

• LPMI differs from borrower-paid mortgage insurance because you cannot cancel it, while borrower-paid PMI may be cancellable and may terminate automatically.
• LPMI usually results in a higher interest rate than borrower-paid mortgage insurance.
• LPMI ends only when the loan is refinanced, paid off or otherwise terminated.
• Both options have benefits and disadvantages.

Comparing LPMI with borrower-paid PMI

• Borrower-paid monthly PMI: lower rate, a separate monthly charge, and the ability to cancel under 12 U.S.C. 4902 as equity grows. See removing PMI.
• LPMI: no separate charge, a higher rate for the life of the loan, and no cancellation. Paying the balance down does not lower the rate.

LPMI can make sense if you expect to sell or refinance before borrower-paid PMI would have dropped off, or if a slightly lower total payment today matters more than long-term cost. It makes less sense if you plan to keep the loan for many years. Ask for both versions on the same day, with the same points, so the comparison is fair.

Fictional example

Fictional example: a buyer wants "no PMI" and is shown a conventional loan with lender-paid insurance. The sentence "this loan has no mortgage insurance" would be false. The sentence "this loan has no separate monthly PMI payment" is true. The buyer asks for a borrower-paid version of the same loan and compares the two payments, the projected point when borrower-paid PMI could be removed, and how long the buyer expects to keep the home. No rates are shown here because both quotes move daily.

Common mistakes

• Thinking LPMI falls off at 78 or 80 percent loan-to-value like borrower-paid PMI. It does not.
• Confusing LPMI with a lender credit. A credit is money toward closing costs in exchange for rate. LPMI is a way to pay for mortgage insurance.
• Comparing an LPMI quote with a borrower-paid quote that has different points.
• Assuming a future refinance will be available. It depends on rates, values and your credit at the time.

For an overview of every type, see which mortgage insurance applies to my loan and how PMI works.

Next step

If you were offered lender-paid mortgage insurance, I can price the borrower-paid version next to it so you can see the trade-off for your timeline. Book a call, or start an application.

Related questions

• How does PMI work?
• How do I get rid of PMI?
• Which mortgage insurance applies to my loan?

Sources

Links checked Oct 21, 2026.

• Homeowners Protection Act, 12 U.S.C. 4905, Disclosure requirements for lender-paid mortgage insurance (current U.S. Code): https://www.law.cornell.edu/uscode/text/12/4905
• Homeowners Protection Act, 12 U.S.C. 4902, Termination of private mortgage insurance (current U.S. Code): https://www.law.cornell.edu/uscode/text/12/4902
• Fannie Mae Selling Guide, B7-1-03 Lender-Purchased Mortgage Insurance (May 27, 2010): https://selling-guide.fanniemae.com/sel/b7-1-03/lender-purchased-mortgage-insurance
• CFPB Ask CFPB, What is lender-paid mortgage insurance? (retrieved Oct 21, 2026): https://www.consumerfinance.gov/ask-cfpb/what-is-lender-paid-mortgage-insurance-en-1937/

About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.

Equal Housing Opportunity.

Last reviewed: Oct 2026

‍