Borrower-Paid vs Lender-Paid PMI: What’s the Difference?

The difference between borrower-paid and lender-paid PMI is a decision you make before closing, not after — and it determines whether your mortgage insurance cost can ever go away. This guide walks Colorado borrowers through how each structure works, where each shows up on the loan paperwork, and how the choice plays out over time, especially if a PCS move or a shorter timeline is in your future.

Here is the short version before the deep dive:

• Borrower-paid PMI (BPMI): you pay the premium directly — as a monthly charge, a one-time up-front payment at closing, or a combination of both. You have legal rights to cancel it once the loan is paid down to the point shown on your PMI disclosure form.
• Lender-paid PMI (LPMI): the lender pays the insurer. In exchange, you usually accept a higher interest rate on the loan. The Consumer Financial Protection Bureau notes that when the lender pays the mortgage insurance, different rules apply — the cancellation rights that come with borrower-paid PMI do not work the same way.

What is private mortgage insurance in the first place?

Private mortgage insurance, or PMI, is insurance you may be required to buy when you take out a conventional loan with a down payment below the threshold that avoids it, according to the Consumer Financial Protection Bureau (CFPB).

PMI protects the lender — not you — if you stop making payments. If you fall behind on the mortgage, PMI does not shield you, and you can still lose the home through foreclosure.

The same requirement usually applies when refinancing a conventional loan if your equity sits below the level that would otherwise avoid mortgage insurance. The lender arranges the coverage, and private insurance companies provide it.

PMI can help you qualify for a conventional loan you might not otherwise get, but it adds to the cost of borrowing. How that cost gets paid is exactly where borrower-paid and lender-paid structures split.

What is borrower-paid PMI?

Borrower-paid PMI means you, the borrower, pay the insurance premium directly. The CFPB describes three common ways this is structured, and lenders may offer you more than one option.

Monthly premium

The most common arrangement adds the PMI premium to your monthly mortgage payment. You see it on page 1 of both the Loan Estimate and the Closing Disclosure, in the Projected Payments section, right alongside principal, interest, property taxes, and homeowners insurance.

Because the premium is a separate line item, it can be removed later without touching the rest of the loan. That separability is the defining feature of borrower-paid PMI.

Single up-front premium

Sometimes PMI is paid as a one-time premium at closing instead of monthly. This charge appears on page 2 of the Loan Estimate and Closing Disclosure, in section B.

The CFPB flags an important catch: if you pay an up-front premium and then move or refinance, you might not be entitled to a refund. For military families in Colorado Springs who could see PCS orders before the loan matures, that non-refundable structure deserves a hard look.

Split premium

A third option combines the two: a smaller up-front premium at closing plus a reduced monthly premium. The up-front portion shows in section B on page 2, and the monthly portion shows in Projected Payments on page 1.

All three of these are still borrower-paid PMI, and the monthly versions carry the cancellation rights covered below. Lender-paid PMI works on a completely different chassis.

What is lender-paid PMI?

Lender-paid PMI flips the arrangement: instead of billing you a separate premium, the lender covers the mortgage insurance itself.

How the cost actually gets paid

Lenders sometimes offer conventional loans with smaller down payments that do not require you to pay PMI separately. As a tradeoff, the CFPB notes, you usually pay a higher interest rate on the loan.

In other words, the insurance cost doesn’t disappear — it gets folded into the loan’s pricing. There is no PMI line in your Projected Payments, because the cost lives inside the interest rate instead.

Why “lender-paid” doesn’t mean free

Whether the higher interest rate ends up costing more or less than paying PMI directly depends on several factors, including how long you plan to stay in the home.

The CFPB’s advice is practical: ask lenders to show detailed pricing for the different options and have the loan officer calculate total costs over a few timeframes that are realistic for you. A borrower planning a short stay and a borrower settling in for decades can reach opposite conclusions from the same pricing sheet.

That timeframe question matters because of the single biggest structural difference between the two: what can and cannot be cancelled.

The key difference: what happens to PMI later

Borrower-paid PMI comes with federal cancellation rights. Lender-paid PMI does not follow those same rules. This is the fork in the road.

Cancelling borrower-paid PMI on request

With borrower-paid PMI on a single-family principal residence, you have the right to ask your servicer to cancel PMI on the date the principal balance is scheduled to fall to the cancellation point set by law. The first date you can make that request appears on the PMI disclosure form you received with the mortgage.

You can even ask earlier if extra payments have brought the balance down to that point ahead of schedule. The servicer must grant the request if you ask in writing, have a good payment history and are current, can certify there are no junior liens such as a second mortgage, and can show — for example, with an appraisal — that the property value hasn’t fallen below its original value.

“Original value” generally means the contract sales price or the appraised value at purchase, whichever is lower. If you refinanced, it means the appraised value at the time of the refinance.

Automatic termination

Even if you never ask, the servicer generally must terminate borrower-paid PMI automatically once the principal balance is scheduled to reach the automatic-termination point of the home’s original value, as long as you’re current on payments.

If you’re behind, PMI ends shortly after the payments are brought up to date.

The midpoint rule

There’s a backstop, too: the servicer must end PMI the month after you reach the midpoint of the loan’s original amortization schedule — halfway through the full original term — even if the balance hasn’t hit the termination point.

This midpoint rule matters most on loans with an interest-only period, principal forbearance, or a balloon payment. You must be current for termination to occur.

Loan investors such as Fannie Mae and Freddie Mac may set their own cancellation guidelines, but those guidelines can’t be less favorable to the borrower than the legal minimums above.

What about cancelling lender-paid PMI?

Here’s the contrast: the CFPB states plainly that if your lender is paying for your mortgage insurance, different rules apply. The request-cancellation, automatic-termination, and midpoint protections described above are borrower-paid PMI rules.

Because the lender-paid cost is carried in the interest rate rather than as a removable line item, building equity doesn’t strip it out of the payment the way it does with monthly BPMI. Ask the loan officer and the servicer exactly how a lender-paid structure behaves over the life of the loan before choosing it.

With the mechanics on the table, the comparison is easier to see side by side.

Borrower-paid vs lender-paid PMI at a glance

Feature	Borrower-paid PMI	Lender-paid PMI
Who pays the insurer	You, via monthly premium, up-front premium at closing, or both	The lender
How you feel the cost	Separate premium shown on the loan paperwork	Usually a higher interest rate on the loan
Where it appears	Page 1 Projected Payments (monthly) and/or page 2 section B (up-front)	No separate PMI line; reflected in loan pricing
Can it be cancelled later?	Yes — on request at the scheduled point, automatically after further paydown, or at the loan’s midpoint	Different rules apply; the cost is built into the loan itself
Refund if you move early	Up-front premiums might not be refundable	No premium to refund; the pricing tradeoff was set at closing

The table tells you what each structure is. The paperwork tells you which one you’re actually being offered.

Where PMI shows up on your loan paperwork

Before agreeing to a mortgage, the CFPB recommends asking lenders what PMI choices they offer. Then verify the answer on the documents.

A monthly borrower-paid premium appears in the Projected Payments section on page 1 of the Loan Estimate and Closing Disclosure. An up-front premium appears on page 2, in section B. A split-premium structure shows in both places.

If you’re quoted a loan with no PMI despite a smaller down payment, ask directly whether the mortgage insurance is lender-paid and how that affected the interest rate you were quoted. Reviewing this during the loan process — before the rate lock — is when you still have room to change course.

One more piece of housekeeping: know who to call about PMI after closing.

Lender vs servicer: who handles PMI questions?

The lender is the institution that originally made the loan. The servicer is the company that sends the statements and manages the loan day to day — and it’s often a different company.

PMI cancellation requests go to the servicer, and your first eligible request date lives on the PMI disclosure form. If you can’t find that form, contact the servicer; its name is on your monthly statement.

Note that mortgages through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) follow different mortgage-insurance requirements than conventional PMI — for questions on those, the CFPB directs borrowers to their servicer.

Knowing the machinery is half the decision. The other half is your own timeline.

How to choose between the two in Colorado

The honest answer is that neither structure wins universally — the math depends on how long you keep the loan.

Think in realistic timeframes

The CFPB’s framework fits Colorado Springs well: ask the loan officer to run total costs over a few holding periods that are realistic for you. A family expecting PCS orders from Fort Carson or Peterson Space Force Base within a few years is comparing very different totals than a family putting down roots near a school district for the long haul.

Watch the exit doors

Borrower-paid monthly PMI has three exit doors — request, automatic termination, and the midpoint rule. An up-front borrower-paid premium might not be refundable if you move or refinance early. Lender-paid PMI’s cost rides with the loan’s pricing.

If you think you’ll refinance or sell relatively soon, that changes which structure’s costs you actually absorb. Map the scenarios before closing, not after.

Alternatives worth putting on the table

PMI is one path to buying with a smaller down payment on a conventional loan, but it isn’t the only conversation to have.

A down payment large enough to meet the conventional-loan threshold avoids PMI entirely and, per the CFPB, could also come with a lower interest rate on the loan. For some buyers, down payment assistance resources are part of getting there.

Borrowers making a low down payment might also consider other loan types, such as an FHA loan; the CFPB notes those can be more or less expensive than a conventional loan with PMI depending on credit score, down payment amount, lender, and market conditions. Eligible service members and veterans should ask about how VA financing handles mortgage insurance differently.

On taxes: whether paying more interest or paying PMI affects your taxes differently is a question for a tax advisor. Tax treatment varies, and a loan officer isn’t the right professional to answer it.

Your next step

Before you commit to either structure, ask for the same loan priced three ways — monthly borrower-paid PMI, up-front or split premium, and lender-paid PMI — and compare the totals over the timeframes you actually expect to own the home.

A 719 Lending loan officer in Colorado Springs can lay those options side by side on real Loan Estimates so you can see exactly where each cost lands on page 1 and page 2. Reach out and bring your expected timeline — including any chance of PCS orders — because that single input drives most of the decision.

Frequently asked questions

Is lender-paid PMI really free?

No. With lender-paid PMI the lender covers the insurance premium, but the tradeoff is usually a higher interest rate on the loan. The cost is built into the loan’s pricing rather than shown as a separate premium, and whether it ends up costing more or less than borrower-paid PMI depends on factors like how long you keep the loan.

Can lender-paid PMI be cancelled like borrower-paid PMI?

The federal cancellation rights — cancelling on request at the scheduled point, automatic termination, and termination at the loan’s midpoint — apply to borrower-paid PMI. The CFPB states that different rules apply when the lender pays the mortgage insurance, so ask the loan officer and servicer how a lender-paid structure behaves before choosing it.

Where does PMI show up on the Loan Estimate?

A monthly borrower-paid premium appears on page 1 in the Projected Payments section. A one-time up-front premium appears on page 2 in section B. A split-premium structure shows in both places. Lender-paid PMI has no separate line because the cost is reflected in the loan’s pricing.

Does PMI protect me if I can’t make my payments?

No. PMI protects the lender against loss if the borrower stops paying. If you fall behind on the mortgage, PMI does not protect you, and you can still lose the home through foreclosure.

If I pay an up-front PMI premium and then get PCS orders, do I get a refund?

Maybe not. The CFPB warns that if you pay a one-time up-front PMI premium at closing and then move or refinance, you might not be entitled to a refund. Military borrowers who could see PCS orders should weigh that before choosing an up-front premium structure.

Who do I contact to cancel my PMI — the lender or the servicer?

The servicer, which is the company that sends your monthly mortgage statements and manages the loan day to day. Make the cancellation request in writing; the first date you can request cancellation is listed on the PMI disclosure form you received with the mortgage.

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719 Lending Inc. is not affiliated with or endorsed by HUD, FHA, VA, USDA, CHFA, the CFPB, or any government agency.

Last updated: August 2026