PMI vs. HOI: What’s the difference? (And why it matters) 

In this article:  

• What are PMI and HOI? 
• The key differences between PMI and HOI 
• How PMI and HOI affect your mortgage payment 

Understanding the different types of insurance associated with a mortgage can be confusing, especially when the acronyms start to blend together. Two of the most commonly misunderstood terms are PMI and HOI. While they may sound similar, they serve entirely different purposes and affect your mortgage in very different ways. 

What is PMI? 

PMI, or Private Mortgage Insurance, protects the lender if a borrower stops making payments. It does not protect the homeowner or the property. PMI is typically required on conventional loans when the borrower makes a down payment of less than 20 percent. 

PMI helps lenders approve loans for members who may not have a large down payment saved. In return, it adds an additional cost to your monthly mortgage payment. The amount varies based on factors such as loan type, credit score and loan-to-value ratio. 

PMI is not permanent. Over time, you may be able to remove it once you reach the required equity level in your home. 

What is HOI? 

HOI, or Homeowners Insurance, protects you as the homeowner. This insurance covers damage to your property from events such as fire, theft, storms or other covered losses. It also provides liability protection if someone is hurt on your property. 

HOI is required by your lender for the entire time you have a mortgage because it ensures the property — the asset securing the loan — is protected. It is also something most homeowners would carry even without a loan, because it safeguards your investment and belongings. 

Your homeowners insurance premium is paid from your escrow account, which is why changes in your HOI premium can affect your monthly mortgage payment. 

The key differences between PMI and HOI 

Even though both appear in discussions about mortgages, PMI and HOI serve very different roles. 

1. Purpose

   PMI protects the lender. 

   HOI protects the homeowner and the property. 

2. Required for different reasons 

   PMI is required when you have less than 20 percent equity in your home. 

   HOI is required for all mortgages. 

3. Payment source

   PMI is paid as part of your mortgage payment. 

   HOI premiums are paid from your escrow account. 

4. How long you have it 

   PMI can be removed once you reach a certain equity level. 

   HOI is required for the entire life of the mortgage. 

Understanding these differences can help you better anticipate changes in your mortgage payment and manage your home-related expenses. 

When does PMI go away? 

PMI does not last forever. It can be removed in a few ways: 

• Borrower-requested cancellation: You may request PMI removal when your loan balance reaches 80 percent of your home’s original value. In most cases, you must have a good payment history, no subordinate liens and meet other eligibility requirements. 
• Automatic termination: PMI is automatically removed by the lender when your balance reaches 78 percent of the original home value. 
• Refinancing: If your home value has increased significantly, refinancing into a new loan may eliminate PMI sooner. 

If you’re unsure whether your loan qualifies for PMI removal, Desert Financial can help you review your options. 

What affects HOI costs? 

HOI premiums can increase or decrease over time. Common factors include: 

• Changes in local rebuilding costs
• Your claims history
• The age or condition of your home
• Updates to coverage or deductibles
• Insurance company rate adjustments

Since HOI premiums are paid from your escrow account, any increase in your policy cost will affect your total monthly mortgage payment. 

How PMI and HOI affect your mortgage payment 

PMI increases your monthly payment because it adds an extra line item to your total mortgage cost. HOI affects your monthly payment through changes in your escrow account. If your premium increases, your escrow account must collect more funds each month to cover the higher cost. 

This is why your mortgage payment may change even if your interest rate stays the same. 

Why these differences matter to homeowners 

PMI and HOI influence your mortgage in different ways, and understanding each helps you: 

• Plan your monthly budget.
• Know when and how you can remove PMI.
• Anticipate changes in your escrow payment. 
• Understand how insurance decisions impact your mortgage. 
• Communicate effectively with your lender and insurance provider.

Both are important components of responsible homeownership, but they play very different roles. 

When to contact Desert Financial 

We’re always here to support you with clear answers and member-first service. Contact Mortgage Servicing at (602) 433-7097 or firstmortgageservicing@desertfinancial.com if: 

• You believe you may qualify for PMI removal.
• Your homeowners insurance premium changed recently.
• You switched insurance providers.
• Your mortgage payment increased unexpectedly.
• You need help understanding your escrow analysis.