Mortgage insurance is one of those pesky things that can really eat into your monthly budget. If you're looking for ways to get rid of it, you've come to the right place! In this blog post, we will outline how mortgage insurance works and provide a step-by-step guide on how to eliminate it from your life. Let's get started!
How to Get Rid of Mortgage Insurance Table of Contents
What is Mortgage Insurance?
Mortgage insurance is an insurance policy that protects the lender in the event that you default on your mortgage payments. Mortgage insurance is typically required if you have a conventional loan and put less than 20% down on your home. If you have private mortgage insurance (PMI), it typically costs between 0.35% to 0.60% of your loan amount annually, and is added to your monthly mortgage payment.
What Are the Different Types of Mortgage Insurance?
There are two types of mortgage insurance: private mortgage insurance (PMI) and mortgage insurance premium (MIP). PMI is typically required if you put less than 20% down on your home. MIP is required if you're taking out a government-backed loan, such as an FHA loan.
What is Private Mortgage Insurance?
Private mortgage insurance (PMI) is an insurance policy that protects the lender in the event that you default on your mortgage payments. PMI is typically required if you have a conventional loan and put less than 20% down on your home.
What is Mortgage Insurance Premium?
Mortgage insurance premium (MIP) is an insurance policy that protects the lender in the event that you default on your mortgage payments. MIP is required if you're taking out a government-backed loan, such as an FHA loan.
How Much Does Mortgage Insurance Cost?
The cost of mortgage insurance varies, but it's typically a few hundred dollars per year. The specific cost will depend on factors like the size of your down payment and the type of loan you have.
Mortgage insurance typically costs 0.35% of your loan balance per year, or $35 for every $100,000 borrowed. So on a $250,000 loan, you would pay about $87.50 per month in mortgage insurance. This cost is usually added to your monthly payment so you don't have to worry about writing a separate check each month.
You can also choose to pay for mortgage insurance upfront when you close on your loan. This will lower your monthly payments, but you'll have to pay a larger chunk of money all at once.
Can I Get Rid of Mortgage Insurance?
Yes! You can get rid of mortgage insurance once you reach 20% equity in your home. This means that you've paid off 20% of the total value of your home. Once you reach this milestone, you can contact your lender to cancel your mortgage insurance.
How to Get Rid of Mortgage Insurance?
There are a few different ways to get rid of mortgage insurance, depending on how long you've been paying on your loan and what type of loan you have. If you have a government-backed loan like an FHA loan or VA loan, you can't get rid of mortgage insurance. But if you have a conventional loan, you can get rid of mortgage insurance once you reach 20% equity in your home.
The easiest way to get rid of mortgage insurance is to make extra payments on your loan. Every time you make a payment, a portion of it will go towards the principal of your loan. This will help you build equity in your home more quickly and eventually cancel out your mortgage insurance.
You can also refinance your loan to get rid of mortgage insurance. If interest rates have gone down since you first took out your loan, this could be a good option for you. You'll need to have at least 20% equity in your home to qualify for a conventional refinance without mortgage insurance.
If you can't reach 20% equity in your home, you may be able to get rid of mortgage insurance by getting a new appraisal. If your home has gone up in value since you first bought it, you may be able to cancel your mortgage insurance with a new home appraisal. This option is typically only available if you have a conventional loan.
No matter what route you decide to take, getting rid of mortgage insurance will save you money in the long run. It's one less bill to worry about each month and one step closer to being debt-free!
When Does Mortgage Insurance Go Away?
Mortgage insurance is required for the life of most loans with less than 20% down. However, there are a few exceptions. If you have an FHA loan and made a large down payment (over 22%), you may be able to cancel your mortgage insurance after 11 years. For VA loans, mortgage insurance is only required if you put less than 20% down. It can't be canceled, but it does go away once you reach 20% equity in your home.
What is Mortgage Refinancing?
Mortgage refinancing is when you replace your current mortgage with a new one. This can be done for various reasons, but most often it’s to get a lower interest rate, access cash equity, or change the loan term.
There are two main types of mortgage refinance:
Rate and Term Refinance
This type of refinance simply replaces your current mortgage with a new one at a lower interest rate. The payments may be higher or lower depending on the length of the loan term.
Cash Out Refinance
With this type of refinance, you take out a new loan that is larger than your current mortgage balance and use the extra money to pay off debts or make home improvements. The interest rate is usually higher than with a rate and term refinance.
Is It Worth It to Get Rid of PMI?
If you're paying mortgage insurance and you have the opportunity to get rid of it, it's probably worth it. Mortgage insurance is an extra expense every month, and getting rid of it can save you a significant amount of money over time. Just be sure to do your research and compare the costs and benefits of different options before making a decision.
No one likes paying extra fees, but mortgage insurance is there for a reason. It protects lenders in case you default on your loan. So if you're able to get rid of it, great! If not, just remember that it's there to help you keep your home if something unexpected happens.
Can Mortgage Insurance Be Cancelled?
Yes, most types of mortgage insurance can be cancelled. The specific requirements to do so vary by insurer, but usually involve meeting certain conditions related to the loan balance, home value, and/or loan-to-value ratio. Some policies may require that the borrower request cancellation in writing, while others will automatically cancel the coverage once these conditions are met.
It's important to note that private mortgage insurance (PMI) is required by lenders when borrowers contribute less than 20% down payment towards their home purchase. Mortgage insurance protects the lender in case the borrower defaults on their loan. As such, it's generally not in the best interest of the borrower to cancel this type of insurance prematurely. However, there may be some circumstances where it makes sense to do so.
For example, if the borrower's employment situation or financial health has changed for the better since taking out the loan, they may be able to qualify for a new policy with more favorable terms. Or, if the value of their home has increased significantly, they may be able to cancel their mortgage insurance and get a new policy with a lower premium.