When you make a down payment of less than 20% on a conventional mortgage, lenders usually require Private Mortgage Insurance (PMI) to protect themselves against default risk. Typically, PMI is paid monthly as part of your mortgage payment. Single-Premium Mortgage Insurance (SPMI) offers a different approach: you pay the full cost of the PMI in one lump sum at closing.
With SPMI, you have two payment options: pay the premium in cash at closing or finance it by adding the premium to your mortgage loan balance. While paying in cash increases your upfront costs, financing the premium spreads out payment but increases your loan principal and the interest paid over time. For example, a 2% SPMI premium on a $350,000 loan is $7,000. You can pay this amount upfront or add it to your loan, resulting in a $357,000 mortgage.
Compared to monthly PMI payments, SPMI reduces your monthly mortgage payment since there’s no recurring PMI charge. However, SPMI is generally non-refundable—even if you sell or refinance early. Monthly PMI, on the other hand, can be cancelled once you have 20% equity in your home, potentially saving you money if you plan to move or refinance soon.
SPMI works best for homebuyers who intend to stay in their home long-term (7-10 years or more) and have sufficient cash reserves for the upfront cost. It can improve your debt-to-income ratio by lowering monthly obligations, potentially helping with loan qualification.
However, there are risks. If you plan to sell or refinance within a few years, SPMI might cost more than monthly PMI because you won’t get a refund on the lump sum premium and may pay interest on that premium if financed.
For more details on PMI and ways to cancel it, see our guide on Private Mortgage Insurance (PMI) and Mortgage Insurance Cancelation. To better understand your mortgage payment breakdown including insurance, consult our Mortgage Payment Breakdown article.
Tax considerations: Mortgage insurance premiums may be tax deductible under certain conditions, but the rules change frequently. Consult IRS guidance or a tax advisor for current information. See IRS Publication 936 for details.
Choosing SPMI is a strategic decision based on your financial situation, homeownership timeline, and cash availability. For many borrowers, monthly PMI remains more flexible, but for those aiming to reduce monthly payments and stay put, SPMI can be a cost-effective alternative.
References:
- Consumer Financial Protection Bureau, “What is private mortgage insurance?” consumerfinance.gov
- IRS Publication 936, “Home Mortgage Interest Deduction”, irs.gov
- Investopedia, “Single-Premium Mortgage Insurance (SPMI)” investopedia.com
- FinHelp.io Glossary: Private Mortgage Insurance (PMI), Mortgage Insurance Cancelation, Mortgage Payment Breakdown
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