Mortgage Insurance Removal: Everything You Need to Know

If you’re a homeowner who got a mortgage loan, you might be paying for mortgage insurance. While it can help you get the loan in the first place, it can feel like a burden over time. Fortunately, there’s an option to remove it. But how do you do it? This article will guide you through the process of mortgage insurance removal.

What is Mortgage Insurance?

Mortgage insurance is a policy that protects the lender if the borrower fails to pay their mortgage. There are two types of mortgage insurance: private mortgage insurance (PMI) and mortgage insurance premium (MIP).

PMI is required for conventional loans with a down payment of less than 20%. MIP, on the other hand, is required for Federal Housing Administration (FHA) loans. It’s an upfront fee and a monthly premium that you have to pay until you reach certain equity or time thresholds.

Both types of mortgage insurance can add hundreds of dollars to your monthly payments. That’s why many homeowners want to get rid of them as soon as possible.

Why Remove Mortgage Insurance?

There are several reasons why you might want to remove your mortgage insurance:

When Can You Remove Mortgage Insurance?

The conditions to remove mortgage insurance depend on the type of loan you have.

Conventional Loans

If you have a conventional loan, you can request to remove PMI once you reach certain equity thresholds. According to the Homeowners Protection Act of 1998, your PMI will be automatically terminated when you reach 22% equity based on the original property value.

However, you can also request to remove it earlier if you’ve made additional payments or if your home value has increased. Your lender may require an appraisal to confirm the property value.

FHA Loans

If you have an FHA loan, you can remove MIP once you reach either of these conditions:

• If you made a down payment of at least 10%, you can request the removal after 11 years.
• If you made a down payment of less than 10%, you have to pay MIP for the life of the loan.

Note that if you have an FHA loan and you’re planning to sell your home, you can’t transfer the MIP to the new owner. It’s a non-transferable policy.

How to Remove Mortgage Insurance?

To remove mortgage insurance, you have to follow certain steps. Here’s a general guide for each type of loan:

Conventional Loans

1. Contact your lender – You have to request in writing to remove PMI. Your lender will give you the requirements to do so.
2. Check your equity – You must have at least 20% equity on your home (based on the original value or the current value, depending on the lender’s requirements).
3. Get an appraisal – Your lender may require an appraisal to confirm your home value.
4. Calculate your savings – Before removing PMI, you should calculate the savings you’ll get without it. You might have to pay a small fee to request the removal.

FHA Loans

To remove MIP from an FHA loan, you have to refinance into a conventional loan. You can only do so if you have at least 20% equity on your home. This means you have to pay off your current loan, and apply for a new one with a different lender. Refinancing has its own costs, such as closing fees and other charges. You should compare the costs and benefits to see if it’s worth it for your situation.

FAQ

1. Can I remove mortgage insurance without refinancing?

Yes, you can remove PMI from a conventional loan without refinancing, but you have to reach certain equity thresholds first. For FHA loans, you have to refinance into a conventional loan to remove MIP.

2. What is the difference between PMI and MIP?

PMI is private mortgage insurance required for conventional loans with a down payment of less than 20%. MIP is mortgage insurance premium required for FHA loans. MIP is an upfront fee and a monthly premium that you have to pay until you reach certain equity or time thresholds.

3. Can I remove MIP from an FHA loan without refinancing?

No, you have to refinance into a conventional loan to remove MIP from an FHA loan.

4. How much can I save by removing mortgage insurance?

The amount you can save by removing mortgage insurance depends on your loan terms and home value. You can use online calculators to estimate your savings. On average, homeowners can save hundreds of dollars per year by removing mortgage insurance.

5. Is it worth removing mortgage insurance?

Removing mortgage insurance can help you save money and build more equity in your home. However, you have to consider the costs of removing it, such as appraisal fees or refinancing fees. It’s best to evaluate your options and see if it’s worth it for your specific situation.

In conclusion, mortgage insurance removal is a process that can help homeowners save money and build more equity in their homes. If you have a mortgage loan with PMI or MIP, you should consider removing it once you reach certain thresholds. Contact your lender and compare your options to see if it’s worth it for you.