If you bought a home with less than 20% down payment, or refinanced with less than 20% equity, you probably have mortgage insurance. Fortunately you can get rid of it. When, and how to do it, is a bit more complicated.
Here are the essentials on removing mortgage insurance:
Conventional Loans: The lender is required to remove the mortgage insurance automatically when you have paid your loan down to 78% of the home value at the time you got the loan. Other options:
- If your home has increased in value so that your loan is now 80% or less its current market value, you can ask the lender if they will remove the mortgage insurance. They will require a home appraisal that shows you have the required equity. Lenders often require you to use one of their approved appraisers. Make sure the lender will allow the removal, because an appraisal can cost $500 or more.
- If the lender insists on waiting to remove the mortgage insurance until you have reduced the loan to 78% of the original home value, you have another option – refinance. If you have 20% equity in your home based on the current market, you can refinance without mortgage insurance. You would have to do some calculations on whether the savings by eliminating your mortgage insurance would balance out the rate and closing costs of a new loan.
- You can also pay down your current loan faster to reduce your balance to 78% and eliminate the mortgage insurance sooner. This way you can keep your existing loan.
FHA insured loan: Most borrowers with FHA loans have less than 10% equity or down payment at the time the loan is originated. If this is the case, FHA will not cancel the mortgage insurance. It persists for the life of the loan. The only way to eliminate the mortgage insurance is by refinancing. The best choice is a conventional loan, as an FHA loan will require new mortgage insurance, even with 20% equity. (If your FHA loan was done prior to June, 2013 different rules apply.)
If you have mortgage insurance and would like some advice on getting rid of it, please give me a call. I would be happy to show you some money-saving options.