Definition
If you put down less than 20%, your lender requires mortgage insurance to protect themselves if you default. It's added to your monthly payment and costs 0.85-1.25% annually.
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MIP required for loans above 80% LTV. FHA requires mortgage insurance regardless of down payment. Cost 0.85-1.25% annually depending on LTV and loan type. Paid monthly with mortgage payment. Can be paid upfront at closing. FHA mortgage insurance non-cancellable. Conventional PMI cancellable at 80% equity. Elimination improves monthly payment. Refinancing removes MIP if equity reached. Tax benefits possible. Significant closing cost component.
Pro Tip
20% down eliminates mortgage insurance. Evaluate cost-benefit of lower down payment with insurance vs. waiting to save more.
Example
Mortgage insurance premium of $150/month was required for 95% LTV loan.