Many lenders tout Lender-Paid-Mortgage-Insurance (LPMI) as a way to avoid mortgage insurance. In fact, one of our lending sources (Quicken) has extremely good LPMI rates. With LPMI, borrowers can avoid mortgage insurance altogether by taking a slightly higher interest rate (3/8 to 1/2 percent higher for a 90% LTV for example).
There is no free lunch, however. Lenders are merely using the extra commission or yield premium that comes from the higher rate to pay for “lump sum” PMI.
The drawback to LPMI is that borrowers are permanently stuck with the higher rate. With monthly PMI, borrowers can get a lower rate and then eliminate the PMI when their loan-to-value drops below 80%. In the long run, monthly PMI is almost always a better deal.
There is one exception: Sometimes borrowers have to take LPMI to qualify for financing that they cannot qualify for with PMI.
Founder/Broker | JVM Lending
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