Definition of a Mortgage Insurance Premium (MIP)
Mortgage Insurance Premiums
What is a mortgage insurance premium? A mortgage insurance premium (MIP) is an insurance plan implemented in FHA loans regardless of the down payment amount you put down on the loan. The MIP is paid directly to the Federal Housing Administration (FHA) instead of a private company as Private Mortgage Insurance (PMI) is. For FHA loans, the mortgage insurance premium remains throughout the life of the loan. This insurance policy protects the lender in the scenario where the borrower is to default on the loan. It is this policy that provides the security that makes FHA loans possible and affordable. The calculations for the MIP will vary depending on the loan-to-value ratio and the length of your loan with the bank.
Mortgage insurance premiums are usually divided into two parts. Typically there is an upfront mortgage insurance premium or “UMIP” cost to be paid during closing. Once that is taken care of, an annual rate will be calculated for payments to be made monthly. This is known as the annual mortgage insurance premium or “AMIP”.