- Official section
- National IV.B: Types of Loans
- Broker weight
- Part of 10% of the national portion
- Expected scored items
- The current PSI broker outline assigns about 10 of 100 scored national items to Financing
Financing exam concept
PMI vs. MIP
Name the loan program before naming the insurance. Conventional loans can use private mortgage insurance, or PMI. FHA-insured loans use mortgage insurance premiums, or MIP, commonly with upfront and annual components. Both protect the credit side of the transaction, not the homeowner's belongings or equity, but their cancellation rules are not interchangeable. For PMI, remember request at 80, automatic at 78, and final termination at midpoint, all with statutory conditions.
Last updated: August 1, 2026
What is the difference at a glance?
Short answer: PMI is private credit-loss insurance used with certain conventional loans, often when the borrower has less than 20% equity at origination. For many Homeowners Protection Act covered mortgages, qualified borrowers can request cancellation at 80% of original value, automatic termination occurs at the scheduled 78% date if current, and a midpoint final-termination rule applies. FHA MIP follows HUD policy instead. Current FHA forward loans commonly carry 1.75% UFMIP plus annual MIP, and many with original LTV above 90% carry annual MIP for the mortgage term. Neither product pays to repair the house or make the borrower's payment after job loss.
Cancellation depends on loan type, closing or FHA case date, occupancy, original value, payment history, lien status, investor rules, risk classification, and current program policy. Fannie Mae, Freddie Mac, private insurers, servicers, and lenders can permit cancellation under standards more favorable than the federal baseline. High-risk loans, lender-paid coverage, multiunit property, second homes, refinances, and older FHA loans require separate review. Current sources cited here were checked through August 1, 2026.
What changes from one term to the next?
- Terms
- PMI vs. FHA MIP
- Difference
- PMI is private coverage for certain conventional loans. MIP is the premium for FHA's federal mortgage insurance program.
- Question cue
- Conventional private insurance versus FHA program insurance.
- Terms
- Borrower-paid PMI vs. lender-paid PMI
- Difference
- Borrower-paid PMI appears as the borrower's premium obligation. Lender-paid PMI is commonly recovered through rate or pricing and does not disappear through the same separate-payment cancellation.
- Question cue
- Visible premium versus embedded lender pricing.
- Terms
- PMI request at 80% vs. automatic termination at 78%
- Difference
- At 80% the covered borrower generally requests cancellation and meets conditions. At the scheduled 78% date the servicer generally terminates automatically if the loan is current.
- Question cue
- Request plus conditions versus automatic scheduled trigger.
- Terms
- 78% termination vs. midpoint termination
- Difference
- The 78% rule uses scheduled LTV against original value. The midpoint rule uses elapsed time in the original amortization period when PMI has not already ended.
- Question cue
- Scheduled balance ratio versus schedule halfway point.
- Terms
- Original value vs. current value
- Difference
- Original value generally uses purchase price or original appraisal as defined by law. Current value reflects a later market date and can matter under investor or servicer options.
- Question cue
- Closing baseline versus later appraisal.
- Terms
- UFMIP vs. annual MIP
- Difference
- UFMIP is charged upfront and may be financed. Annual MIP is an ongoing annual premium commonly collected through monthly installments.
- Question cue
- Closing charge versus recurring charge.
- Terms
- Mortgage insurance vs. homeowners insurance
- Difference
- Mortgage insurance protects credit risk for the lender or program. Homeowners insurance covers specified physical property and liability risks under its policy.
- Question cue
- Default loss versus casualty and liability loss.
- Terms
- Mortgage insurance vs. mortgage life insurance
- Difference
- PMI or MIP covers creditor loss from mortgage default. Mortgage life coverage is a separate product tied to the insured person's death under its terms.
- Question cue
- Credit enhancement versus life event coverage.
- Terms
- VA funding fee vs. monthly mortgage insurance
- Difference
- The VA funding fee is generally a one-time program charge with exemptions. VA-guaranteed loans do not impose monthly mortgage insurance.
- Question cue
- One-time guaranty funding versus recurring insurance premium.
- Terms
- Premium cancellation vs. loan payoff
- Difference
- PMI cancellation removes the insurance charge while the loan continues. Payoff satisfies the debt and triggers release of the security instrument.
- Question cue
- End insurance cost versus end loan.
How does the distinction change the answer?
Borrower-requested PMI cancellation
Scenario: A covered conventional borrower reaches 80% of original value through scheduled amortization, submits a written request, is current with a good payment history, certifies no junior liens, and supplies acceptable value evidence when asked.
- The loan is conventional with borrower-paid PMI.
- The borrower has reached the request threshold and completed the listed conditions.
- The servicer should evaluate cancellation under the Homeowners Protection Act and any more favorable investor rules.
Answer: This is the general 80% borrower-requested PMI cancellation case.
Automatic PMI termination
Scenario: A current covered borrower makes no request. The amortization schedule reaches 78% of original value on October 1.
- Automatic termination uses the scheduled 78% date.
- The borrower is current, satisfying the stated condition.
- No request or new appraisal is needed for the general automatic rule on these facts.
Answer: The servicer generally must terminate PMI at the scheduled 78% date.
Extra payment reaches 78% early
Scenario: A borrower pays a large principal curtailment and the actual balance reaches 78% two years before the schedule does, but the borrower submits no cancellation request.
- The general automatic rule follows the scheduled 78% date, not an early actual balance.
- Actual payment can support a borrower request at the 80% threshold, subject to conditions.
- Investor rules may offer a more favorable alternative.
Answer: Early actual 78% does not by itself replace the scheduled automatic date under the general statutory rule.
Midpoint on an interest-only loan
Scenario: PMI remains on a covered 30-year mortgage because an interest-only period prevented the balance from reaching scheduled 78%. The borrower is current after 15 years.
- Fifteen years is the midpoint of the original 30-year amortization period.
- The midpoint rule applies when PMI has not ended earlier.
- The borrower is current on the stated date.
Answer: PMI generally reaches final termination the month after the midpoint, subject to applicable exceptions.
FHA loan above 90% original LTV
Scenario: A current-era FHA forward mortgage originated at 96.5% LTV. Years later, appreciation and payments put the owner's estimated current LTV below 78%.
- The loan uses FHA MIP rather than conventional PMI.
- Its original LTV exceeded 90%.
- Current FHA duration rules generally continue annual MIP for the mortgage term on this structure unless the FHA loan is paid off or otherwise ends under applicable rules.
Answer: Do not cancel this MIP by applying the conventional scheduled 78% rule.
Calculate current UFMIP
Scenario: A qualifying FHA problem states a $280,000 base loan amount and the current standard 1.75% UFMIP, financed into the total mortgage amount.
- $280,000 times 1.75% equals $4,900.
- The premium is calculated from the stated base loan amount.
- $280,000 plus $4,900 equals a $284,900 total mortgage amount before any unrelated adjustment.
Answer: UFMIP is $4,900, and the stated financed total is $284,900.
The I-N-S-U-R-E mortgage-insurance test
- Identify the loan: conventional, FHA, VA, USDA, or another product determines the correct insurance or guarantee vocabulary.
- Name the protection: decide who receives default-loss protection and who pays the premium or program fee.
- Start point: record original value, original LTV, loan term, amortization, closing date, FHA case date, premium type, and disclosures.
- Update performance: check scheduled and actual principal, current status, payment history, junior liens, and required value evidence.
- Rule: apply PMI request, automatic, or midpoint provisions, or the separate FHA, VA, USDA, investor, or lender standard.
- Economics: compare monthly, upfront, financed, lender-paid, refundable, rate, APR, cash-to-close, and refinance costs.
- Feature
- Provider
- Conventional PMI
- Private insurer
- FHA MIP
- Federal FHA program
- Exam warning
- Use correct program label
- Feature
- Upfront charge
- Conventional PMI
- Possible, product-specific
- FHA MIP
- UFMIP commonly applies
- Exam warning
- May be financed but still costs interest
- Feature
- Ongoing charge
- Conventional PMI
- Monthly or other structure
- FHA MIP
- Annual MIP often paid monthly
- Exam warning
- Rate and duration follow different rules
- Feature
- Ending rule
- Conventional PMI
- 80 request, 78 automatic, midpoint baseline
- FHA MIP
- Current HUD duration by original LTV and case date
- Exam warning
- Never swap the rules
Where do similar terms create traps?
- Trap
- Calling FHA MIP private mortgage insurance
- Correction
- PMI is private conventional coverage; MIP belongs to FHA's federal insurance program.
- Trap
- Saying mortgage insurance protects the homeowner
- Correction
- It protects the lender, investor, or insurance fund against specified default loss.
- Trap
- Using 80% as automatic PMI termination
- Correction
- The general 80% rule is borrower-requested and conditional; scheduled 78% is the automatic baseline.
- Trap
- Using actual early 78% as the automatic date
- Correction
- Automatic termination generally follows the scheduled balance date, while extra payments can support a cancellation request.
- Trap
- Calling midpoint a 50% LTV test
- Correction
- Midpoint is halfway through the original amortization period, not half the property's value.
- Trap
- Using current appreciation for the statutory original-value test
- Correction
- The HPA baseline uses defined original value; later value can matter under separate investor or servicer standards.
- Trap
- Applying HPA cancellation rules to FHA MIP
- Correction
- FHA premium duration follows HUD rules based on case timing, original LTV, term, and program.
- Trap
- Assuming lender-paid PMI is free
- Correction
- The lender commonly recovers its insurance cost through interest rate or pricing.
- Trap
- Assuming financed UFMIP disappears
- Correction
- Financing adds the premium to the debt, and the borrower pays interest on the added amount.
- Trap
- Calling the VA funding fee monthly insurance
- Correction
- VA uses a guaranty and usually a one-time funding fee, with exemptions, rather than monthly mortgage insurance.
- Trap
- Confusing PMI with homeowners or title insurance
- Correction
- Identify whether the covered risk is default, casualty, flood, title defect, death, or disability.
- Trap
- Promising cancellation from an online value estimate
- Correction
- The servicer applies governing law, investor criteria, payment records, lien status, and acceptable value evidence.
Can you separate the terms in a new fact pattern?
These questions are original study items aligned to the published outline. They are not copied, recalled, or predicted PSI questions.
1. Which insurance is associated with certain conventional mortgages?
- PMI
- FHA MIP
- VA funding fee
- Owner's title insurance
Show answer and explanation
Answer: PMI
Private mortgage insurance is the conventional-loan credit protection in this comparison.
2. For many covered conventional loans, what happens at 80% of original value when all other conditions are met?
- The borrower may request PMI cancellation
- FHA MIP automatically ends
- The mortgage is paid off
- Homeowners insurance ends
Show answer and explanation
Answer: The borrower may request PMI cancellation
The 80% threshold supports a written borrower request subject to payment, lien, and value conditions.
3. For many covered conventional loans, which is the general automatic PMI termination threshold if the borrower is current?
- Scheduled 78% of original value
- Actual 80% of current value
- 50% of original value
- Any appraisal increase
Show answer and explanation
Answer: Scheduled 78% of original value
Automatic termination is tied to the scheduled 78% date under the general Homeowners Protection Act rule.
4. A current-era FHA loan originated above 90% LTV. Which statement best describes annual MIP duration under the general current rule?
- It generally lasts for the mortgage term
- It automatically ends at scheduled 78% under HPA
- It ends after one year
- It is conventional PMI
Show answer and explanation
Answer: It generally lasts for the mortgage term
Current-era FHA forward mortgages above 90% original LTV generally carry annual MIP for the mortgage term.
5. Who receives the primary default-loss protection from PMI or FHA MIP?
- The lender, investor, or insurance fund
- The homeowner's furniture
- The property-tax collector
- The home inspector
Show answer and explanation
Answer: The lender, investor, or insurance fund
Mortgage insurance is credit protection, even when its cost is paid by the borrower.
Where do these ideas appear on the outline?
- Topic
- PMI function
- What to know
- Private mortgage insurance, conventional loan, insurer, lender, investor, default, foreclosure loss, claim, coverage percentage, borrower-paid premium, risk transfer, and no borrower debt release
- Best exam move
- Choose PMI when a conventional loan uses a private insurer to protect the creditor from part of its loss.
- Topic
- MIP function
- What to know
- FHA mortgage insurance premium, HUD, FHA insurance, approved lender, Mutual Mortgage Insurance Fund, claim, UFMIP, annual MIP, monthly installment, borrower charge, and no PMI label
- Best exam move
- Choose MIP when the mortgage is FHA insured and the question asks for its insurance premium.
- Topic
- Insurance beneficiary
- What to know
- Lender protection, investor protection, FHA fund, default loss, borrower pays, no homeowners coverage, no payment protection, no title coverage, no equity reimbursement, and continued liability
- Best exam move
- The borrower can pay the premium without becoming the insured beneficiary against ordinary default loss.
- Topic
- PMI at origination
- What to know
- Conventional credit, high LTV, less than 20% down, risk, credit score, loan type, occupancy, coverage, monthly premium, single premium, split premium, lender-paid, disclosure, and not every loan
- Best exam move
- Treat 20% as a common threshold cue, not proof that identical PMI pricing applies to every conventional program.
- Topic
- Borrower-requested PMI cancellation
- What to know
- 80% original value, scheduled date, actual payment, extra principal, written request, good payment history, current status, no subordinate lien certification, value evidence, servicer, and HPA coverage
- Best exam move
- At 80%, the borrower generally requests and satisfies conditions; cancellation is not the same as the 78% automatic rule.
- Topic
- Automatic PMI termination
- What to know
- 78% original value, scheduled balance, amortization schedule, fixed rate, ARM schedule then in effect, current payments, termination date, no borrower request, extra payments, and statutory baseline
- Best exam move
- Use scheduled 78%, not today's appraisal or an actual balance reached early, for the general automatic-termination trigger.
- Topic
- PMI final termination
- What to know
- Midpoint, original amortization period, month after midpoint, 15 years on 30-year term, current status, interest-only, balloon, principal forbearance, high-risk exception, and no 50% LTV rule
- Best exam move
- Midpoint refers to time in the original schedule, not a 50% loan-to-value ratio.
- Topic
- Original value
- What to know
- Purchase, lesser of contract price or original appraisal, refinance appraisal, consummation, 80%, 78%, original LTV, current market value, new appraisal, decline evidence, and no appreciation substitution
- Best exam move
- For the statutory baseline, calculate from original value rather than automatically using today's higher estimate.
- Topic
- Good payment history
- What to know
- Current loan, late payment, 30 days, 60 days, lookback, written request, automatic termination, brought current, servicer records, modification, and HPA definition
- Best exam move
- Requested cancellation carries performance conditions that are separate from reaching the numerical LTV threshold.
- Topic
- Junior liens and value evidence
- What to know
- Second mortgage, HELOC, subordinate lien, certification, appraisal, broker price opinion, property decline, current condition, servicer requirement, cost, and no automatic acceptance
- Best exam move
- At requested cancellation, verify the no-junior-lien and value conditions rather than relying on owner's estimated equity.
- Topic
- Lender-paid PMI
- What to know
- LPMI, lender premium, higher interest rate, pricing adjustment, no separate monthly line, embedded cost, loan life, refinance, tax treatment, total cost, and HPA difference
- Best exam move
- No monthly PMI line does not prove free insurance or the absence of an insurance-related price tradeoff.
- Topic
- Single and split premiums
- What to know
- Upfront PMI, monthly PMI, single premium, split premium, financed premium, seller or lender credit, refundability, rate, break-even, cash to close, and no cancellation refund assumption
- Best exam move
- Compare when the premium is paid and whether any unused amount is refundable under the policy.
- Topic
- FHA UFMIP
- What to know
- Upfront mortgage insurance premium, current 1.75% for most forward purchase and refinance programs, base loan amount, financing, cash payment, total mortgage amount, interest on financed premium, and exceptions
- Best exam move
- Calculate stated UFMIP from the base loan amount before adding the financed premium when the question directs that method.
- Topic
- FHA annual MIP
- What to know
- Annual premium, monthly installments, outstanding balance basis, term, original LTV, base amount, endorsement or case date, rate table, 11 years, mortgage term, and program exception
- Best exam move
- Use the FHA table and case date supplied or currently applicable; do not import PMI's 80% and 78% cancellation rules.
- Topic
- FHA MIP duration
- What to know
- Original LTV 90% or less, 11 years, original LTV above 90%, mortgage term, post-June 3 2013 rule, older loan, refinance, payoff, current HUD policy, and no automatic appreciation cancellation
- Best exam move
- For current-era FHA forward loans, classify duration from original LTV and term rather than current equity alone.
- Topic
- VA and USDA distinction
- What to know
- VA guaranty, funding fee, exemption, no monthly MI, USDA loan-note guarantee, upfront guarantee fee, annual fee, rural program, conventional PMI, FHA MIP, and correct labels
- Best exam move
- Use the program's own charge name instead of calling every lender-protection cost PMI.
- Topic
- Other insurance distinctions
- What to know
- Homeowners insurance, hazard loss, flood insurance, title insurance, owner policy, lender policy, mortgage life insurance, disability protection, force-placed insurance, PMI, MIP, and different beneficiary
- Best exam move
- Identify the risk being insured: borrower default, physical damage, flood, title defect, death, or disability.
- Topic
- Broker boundaries
- What to know
- Explain general cost, no cancellation promise, no premium quote, no appraisal conclusion, servicer, lender, private insurer, HUD, VA, USDA, loan originator, and written disclosure
- Best exam move
- Direct loan-specific premium, duration, refund, and cancellation questions to the servicer or qualified lending professional.
How do you make the distinction stick?
- Session
- Session 1
- Focus
- Match program and label
- Proof you are ready
- Classify 24 scenarios as conventional PMI, FHA MIP, VA funding fee, USDA guarantee fee, or unrelated insurance.
- Session
- Session 2
- Focus
- Own 80, 78, and midpoint
- Proof you are ready
- Solve 20 PMI cancellation questions and state request, automatic, or final-termination conditions for each.
- Session
- Session 3
- Focus
- Calculate original value and LTV
- Proof you are ready
- Calculate purchase original value, refinance original value, 80% and 78% balances, and midpoint dates for 15 loans.
- Session
- Session 4
- Focus
- Apply FHA duration
- Proof you are ready
- Separate current-era 11-year and mortgage-term MIP cases by original LTV and identify when older rules require research.
- Session
- Session 5
- Focus
- Compare premium economics
- Proof you are ready
- Compare monthly, single, split, lender-paid, upfront-financed, refundable, and rate-embedded options using total cost.
- Session
- Session 6
- Focus
- Run the I-N-S-U-R-E test
- Proof you are ready
- Score at least 90% and state loan, protection, start point, performance, rule, and economics for every miss.
Do not count recognition as mastery. Close the notes and explain the rule, apply it to a new fact pattern, and identify why each distractor fails.
Turn the comparison into a test-day decision
From concept to decision
Drill this topic, then review the explanation
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Questions students ask about PMI vs. MIP: Mortgage Insurance Compared
What is PMI?
PMI is private mortgage insurance used with certain conventional mortgages. It protects the lender or investor against part of the loss if the borrower defaults. The borrower may pay the premium, but PMI does not replace the borrower's homeowners insurance, life insurance, disability insurance, or repayment obligation.
What is FHA MIP?
MIP means mortgage insurance premium under an FHA-insured mortgage. Most current FHA forward programs collect an upfront mortgage insurance premium, or UFMIP, and an annual MIP usually paid in monthly installments. The insurance protects FHA's mortgage insurance program and the lender's insured risk, not the borrower's personal equity.
What is the main difference between PMI and MIP?
PMI is private insurance associated with conventional credit. MIP is the federal FHA program's mortgage insurance premium. Their pricing, disclosures, cancellation, duration, and refund rules are different. The Homeowners Protection Act's general PMI thresholds do not convert FHA MIP into cancellable PMI.
When can a borrower request PMI cancellation?
For many covered principal-residence mortgages, the borrower can request cancellation when the balance is scheduled to reach 80% of original value or reaches 80% early through actual payments. The borrower generally must make a written request, be current with a good payment history, satisfy the no-junior-lien certification, and provide value evidence if required.
When does PMI automatically terminate?
For many covered loans, the servicer generally must terminate PMI when the balance is first scheduled to reach 78% of original value, provided the borrower is current. This scheduled date is distinct from an actual balance reduced early by extra payments. If the borrower is not current, termination generally follows after the loan is brought current.
What is PMI final termination at the loan midpoint?
For covered residential mortgages, PMI generally ends the month after the midpoint of the original amortization period if it has not ended earlier and the borrower is current. On an original 30-year schedule, that point follows 15 years. The rule is especially relevant to interest-only, balloon, or principal-forbearance structures that may not reach 78% on the ordinary date.
Can FHA MIP be canceled at 80% or 78% LTV?
Do not apply the conventional PMI thresholds to current FHA loans. For many FHA forward mortgages with current-era case numbers, annual MIP lasts 11 years when the original LTV is 90% or less and for the mortgage term when original LTV exceeds 90%. Older endorsements and special programs can follow different rules, so the case date and FHA policy matter.
What is lender-paid mortgage insurance?
With lender-paid mortgage insurance, the lender arranges and pays the premium but ordinarily recovers the cost through the rate, pricing, or another economic term. Because the borrower is not making a separately identified monthly PMI payment, ordinary borrower-paid cancellation mechanics do not simply remove that embedded price. Compare total cost and refinance risk.
Do VA loans have PMI or monthly MIP?
VA-guaranteed loans do not use monthly mortgage insurance. An eligible borrower commonly pays a one-time VA funding fee unless exempt, and the VA guaranty protects the lender. USDA guaranteed loans use their own upfront and annual guarantee-fee structure, not conventional PMI or FHA MIP terminology.
Are these official PSI questions?
No. They are original questions aligned to the national Financing outline effective June 24, 2026. The current PSI bulletin, Homeowners Protection Act, CFPB guidance, HUD Handbook 4000.1 and FHA premium guidance, VA, and USDA materials were reviewed through August 1, 2026.
Primary sources
- PSI Illinois Candidate Information Booklet dated June 24, 2026
- Consumer Financial Protection Bureau, current PMI cancellation and termination guidance
- Consumer Financial Protection Bureau, Homeowners Protection Act examination procedures
- 12 U.S.C. 4902, current statutory PMI cancellation and termination requirements
- HUD, current FHA forward mortgage insurance premium structure
- HUD Handbook 4000.1, current FHA mortgage insurance policy
- Department of Veterans Affairs, current funding-fee and no-monthly-MI guidance
- USDA Rural Development, current Section 502 guarantee program guidance
The current official outline controls the tested scope. Statutes, regulations, and official agency materials control when a general study rule and a jurisdiction-specific rule differ.
Editorial status
Checked against primary sources
The Pass Illinois editorial team last checked this guide on August 1, 2026. Every practice question is an original study item, and the source links above let you verify the rules that support the lesson.