How to get rid of Mortgage Insurance

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Let’s begin with the basics.

MIP (mortgage insurance premium), MI (mortgage insurance), and PMI (private mortgage insurance) are types of insurance that protect the lender if a borrower defaults on a loan.  Simply put, if a borrower defaults, the lender will be able to recoup a portion of their losses. This allows them to make loans with less money down which are considered riskier. For more details, check out the benefits of mortgage insurance.

Any loan with less than 20% equity will have some sort of mortgage insurance paid monthly. The amount of mortgage insurance depends on multiple factors like credit score, amount of down payment, loan amount, and type of loan. 

For instance, all FHA loans have mortgage insurance regardless of the amount you put down.   Conventional loans only have mortgage insurance with less than 20% down.  

MI Removal Guidelines

FHA Mortgages:

  • FHA MIP, or mortgage insurance premium, is a type of insurance policy that protects lenders if an FHA loan holder defaults on his or her mortgage.
  • FHA issued changes in June of 2013 that affected when and how a borrower can remove mortgage insurance.  We’ll look at this from both scenarios.
  • If you got your FHA Case Number before June 3, 2013 your annual MIP should automatically cancel at 78% LTV, provided you’ve been paying mortgage insurance for at least 5 years. For a 15-year loan originated before that date, the 78% LTV “trigger” applies, but there is no 5-year requirement for payment.
  • If you got your FHA Case Number After June 3, 2013 it’s a little bit trickier.  FHA no longer allows borrowers to cancel FHA MIP after the LTV has reached 78%.
  • If you put down 10% or more, your MI will disappear after 11 years or 132 payments- this applies to both 15 and 30-year mortgages. If you did not put 10% or more down, you will have MI for the life of the loan.  You can still avoid paying mortgage insurance after you have paid down your loan-to-value to 80% or less, such as refinancing your FHA loan to a conventional loan. 

Conventional Mortgages:

  • You have more options to cancel mortgage insurance if you have a conventional (non-government) loan with PMI. Many home buyers opt for a conventional loan, because PMI drops, while FHA MIP typically does not.
  • By law, lenders must automatically cancel conventional PMI when you reach 78% loan-to-value of the original appraised value or purchase price. This can happen by paying your regular monthly payment or paying extra monthly to pay down your loan more quickly. You could also pay down a lump sum towards your mortgage to get it to that 78% mark. 
  • What if your property value has increased due to appreciation, property improvements or both? In many circumstances, you may not want to wait for the MI to fall off in which case you would contact the lender directly. This can be a tad bit trickier and is not always clear cut. Loan investors, including Fannie Mae and Freddie Mac, often create their own PMI cancellation guidelines that may include PMI cancellation provisions.
  • Borrower requested based upon original value or purchase price – if you pay down your home to 80% of the original value, you can call the lender and have them remove it for you. Most lenders require that you have been 0x30 in the last 12 months on your mortgage payments. 
  • Borrower requested based upon an increase in home value due to natural appreciation or home improvements – must wait until year 2 of later.  If you’ve owned the home for 2-5 years, the LTV must be 75% or less to have a lender remove it due to a property increase.  If you’ve owned the home over 5 years, they lender can remove it once you are at 80% loan to value. 
  • Another option to cancel conventional PMI is by refinancing. The appraisal for your refinance loan serves as proof of current value. If your loan amount is 80% or less of your current value, you do not incur new PMI. In fact, there are many loans out there that can refinance up to 95% loan to value with no monthly mortgage insurance! 

Other requirements when canceling PMI

  • You must request cancellation in writing.
  • You have to be current on your payments and have a good payment history.
  • You might have to prove that you don’t have any other liens on the home (for example, a home equity loan or home equity line of credit).
  • You might have to get an appraisal to demonstrate that your loan balance isn’t more than 80 percent of the home’s current value.
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