MORTGAGE BLOGBlog posted On August 20, 2026
When you’re a new homeowner diving into the mortgage process, there are a few unfamiliar words that get bandied about. Today, we’re unpacking three of these financial terms so that you can confidently discuss loans terms with your lending team. We’ll go over private mortgage insurance, mortgage insurance premiums, and guarantee fees.
What is Private Mortgage Insurance (PMI)?
Private mortgage insurance (PMI) is a type of mortgage insurance buyers are required to pay if less than 20% is put down on a Conventional Loan. It’s also required when refinancing with less than 20% equity. Note that this is in addition to homeowners insurance.
The purpose of PMI is that it allows an expanded pool of buyers to become homeowners while providing security for lenders. Buyers will have the option to remove PMI through refinancing down the line.
The cost of PMI depends on a few things:
What is a Mortgage Insurance Premium (MIP)?
A mortgage insurance premium (MIP) is mortgage insurance required on FHA Loans, which feature down payments as low as 3.5% and offer flexible credit qualifications. Unlike the down payment stipulation when putting less than 20% down on Conventional Loans, MIP is required on all FHA mortgages. This all means that borrowers won’t have the ability to remove MIP with a refinance later; it’s meant to be paid through the life of the loan.
You would have to completely restructure your FHA Loan into a Conventional mortgage and build enough equity that removes the PMI requirement.
What is a Guarantee Fee?
A guarantee fee is required on all USDA Loans, similar to an MIP on FHA Loans. It helps low-to-moderate USDA buyers purchase, rehabilitate, or relocate a home in a rural area. Also called a funding fee, it’s the combination of an upfront fee and an annual premium cost. The upfront USDA guarantee fee typically costs 1% of the loan amount, and the annual fee is typically 0.35% of the principal loan balance, divided into monthly payments over the loan duration
Another MIP similarity: it is not possible to get rid of the guarantee fee, it comes tacked onto all USDA mortgages. Sometimes, sellers are willing to pay for the guarantee during seller negotiations, so it’s worthwhile ask for this bundled into seller concessions if possible.
Achievement Unlocked: The Basics of Mortgage Insurance and Fees!
Feeling more comfortable with mortgage terminology? We hope so and wish you the best on your home loan journey. Now that you’ve ironed out the basics of loan types and down payment requirements, you’re ready to go forth and strategize your homeownership game plan, whether that means taking on mortgage premiums with a lower down payment or saving up more to avoid extra insurance costs. Go forth and prosper, home buyers!
Source: NerdWallet, Investopedia, NerdWallet, Zillow
