If you’re a homeowner who has bought a house with a low down payment, you would have likely had to pay for mortgage insurance. Mortgage insurance is typically required if the down payment is less than 20% of the purchase price of the house. This article will guide you on how to remove mortgage insurance from your monthly payment and save you money.
What is Mortgage Insurance?
Mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on the loan. The insurance is typically required if the borrower has a low down payment, usually less than 20% of the purchase price. Mortgage insurance is usually paid monthly and can add an extra cost to the monthly mortgage payment.
If you’re looking to remove mortgage insurance, the first step is to determine if you’re eligible to do so. There are several ways to remove mortgage insurance, which we will explain in detail in the following sections.
How to Remove Mortgage Insurance?
If you’re looking to remove mortgage insurance, there are several ways to do so. Below are some of the most common methods:
1. Refinance Your Mortgage
One of the most common ways to remove mortgage insurance is to refinance your mortgage. If you have made significant payments towards your mortgage, you may have built up enough equity to refinance your mortgage without needing mortgage insurance. Refinancing can also help you get a lower interest rate, which can save you money in the long run.
2. Wait for Automatic Cancellation
If you have a conventional mortgage, you may be able to get rid of mortgage insurance by waiting for automatic cancellation. If you have paid off enough of your mortgage, your lender may automatically cancel your mortgage insurance. The Automatic cancellation rule for conventional loans is usually when the borrower reaches 78% loan-to-value (LTV) based on the original purchase price (or appraised value at the time of the refinance).
3. Request Cancellation
If you have made significant payments towards your mortgage and have built up enough equity, you may be able to request cancellation of your mortgage insurance. You should contact your lender and ask them to cancel your mortgage insurance if you believe you qualify.
Making extra payments towards your mortgage can help you build equity faster, which can lead to the early cancellation of your mortgage insurance. By making additional principal payments, you can reduce your loan-to-value (LTV) and get rid of your mortgage insurance earlier.
What are the Pros and Cons of Removing Mortgage Insurance?
Before you remove mortgage insurance, it is essential to consider the pros and cons. Below are some of the advantages and disadvantages of removing mortgage insurance:
Pros
Advantages |
Explanation |
Cost Savings |
Removing mortgage insurance can save you hundreds or thousands of dollars over the life of the loan. |
Improved Cashflow |
Removing mortgage insurance can free up cash flow by reducing your monthly payments. |
Equity Buildup |
Removing mortgage insurance can help you build equity in your home faster, which can be used for other investments. |
Cons
Disadvantages |
Explanation |
Higher Closing Costs |
Refinancing your mortgage or requesting cancellation of mortgage insurance can come with higher closing costs. |
Decreased Flexibility |
If you request cancellation of your mortgage insurance, your lender may require you to keep a higher interest rate or stricter payment terms. |
FAQ (Frequently Asked Questions)
1. How much can I save by removing mortgage insurance?
The amount you can save by removing mortgage insurance can vary depending on the loan amount, interest rates, and loan term. However, you can potentially save hundreds or thousands of dollars over the life of the loan by removing mortgage insurance.
2. Is it necessary to refinance to remove mortgage insurance?
No, it is not necessary to refinance to remove mortgage insurance. You can request cancellation of your mortgage insurance if you believe you have built up enough equity in your home.
3. Can I remove an FHA mortgage insurance premium?
If you have an FHA loan, you are required to pay mortgage insurance premiums for the life of the loan. The only way to remove the mortgage insurance is to refinance into a non-FHA loan.
4. How long does it take to remove mortgage insurance?
The process of removing mortgage insurance can vary depending on the method you choose. Automatic cancellation of mortgage insurance usually occurs when the borrower reaches 78% loan-to-value (LTV) based on the original purchase price (or appraised value at the time of the refinance). Requesting cancellation of mortgage insurance can take several weeks or even months to complete.
5. Can I get a refund for my mortgage insurance premiums?
If you have prepaid your mortgage insurance premiums, you may be eligible for a refund if you remove your mortgage insurance. However, the amount of the refund will depend on the lender’s policy.
Conclusion
Removing mortgage insurance can save you hundreds or thousands of dollars over the life of the loan. You have several options for removing mortgage insurance, including refinancing your mortgage, waiting for automatic cancellation or requesting cancellation. It’s essential to consider the pros and cons of removing mortgage insurance before making a decision. If you’re unsure about how to remove mortgage insurance, it’s best to speak with a financial advisor or mortgage lender.
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