Mortgage Insurance Premium
The mortgage insurance premium (MIP) is the specific cost paid for mortgage insurance coverage, calculated as a percentage of the loan amount and paid either monthly, annually, or as a one-time upfront fee. The premium amount varies based on factors like loan-to-value ratio, credit score, and loan type (conventional loans have PMI while FHA loans have MIP).
Example
“Our monthly mortgage insurance premium of $150 will be automatically added to our mortgage payment.”
Memory Tip
MIP = Monthly Insurance Payment - it's the PREMIUM price you pay for mortgage insurance protection.
Why It Matters
Understanding MIP costs helps buyers accurately calculate their total monthly housing payment and plan for when these payments might end. Shopping for the best mortgage insurance rates can save thousands over the life of a loan.
Common Misconception
Many borrowers assume all mortgage insurance premiums are the same, but rates vary significantly between different insurers and loan programs.
In Practice
An FHA borrower with a $200,000 loan pays an upfront MIP of 1.75% ($3,500) at closing plus an annual MIP of 0.85% ($1,700 annually or $142 monthly) for the life of the loan since their down payment was less than 10%.
Etymology
Adds 'premium' from Latin 'praemium' (reward or prize) to mortgage insurance, referring to the payment made for coverage.
Common Misspellings
Compare the best financial products for you
More in financing
Other financing terms you should know
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.