Is It Time to Cancel the Mortgage Insurance?

Mortgage insurance benefits the lender if a borrower with less than a 20% down payment defaults on their loan.  Most conventional mortgages greater than 80% and all FHA loans require the borrower to have this coverage.

Private mortgage insurance on conventional loans can range from 0.5% to 2.25% based on the loan-to-value and the credit worthiness of the borrower.  A $350,000 mortgage would have a monthly mortgage insurance premium of $146 a month at the low-end of the scale and over $600 on the high-end.

You may request that your mortgage servicer cancel the PMI when the principal balance reaches 80% of the original value at the time the loan was made.  You should have received a PMI disclosure form when you signed the mortgage documents stating the date.  If you have made additional principal contributions, it will accelerate the date.

Other criteria considered to cancel the PMI on your loan is:

• The request must be in writing.
• You must be current on your payments with a good payment history.
• The lender may ask that you certify there are no junior liens in effect.
• If the lender is concerned that the value has declined, an appraisal may be required to show that it is eligible.

Conventional loans are supposed to remove the mortgage insurance when the unpaid balance is 78% of the original purchase price.  

Another possibility is that the lender/servicer must end the PMI the month after you reach the midpoint of your loan's amortization schedule.  For a 30-year loan, it would be after the 180^thpayment was paid.  The borrower must be current on the payments for the termination to occur.

With the rapid appreciation that many homes have enjoyed in recent years, homeowners may be able to refinance their home and if the new mortgage amount is less than 80% of the current appraised value, no mortgage insurance would be required.

The owner would incur the cost of refinancing but eliminate the cost of the mortgage insurance.  To calculate the savings, subtract the new principal and interest payment from the old principal and interest with PMI.  Then, divide the savings into the cost of refinancing to determine the number of months necessary to recapture the cost.

FHA loans have two types of mortgage insurance premium: up-front and monthly.  For loans with FHA case numbers assigned on or after June 3 2013 with LTV% greater than 90%, the MIP will be paid for the entire term of the loan.  If that is the case, refinancing on a conventional loan is the only way to eliminate the MIP.  For loans with original LTV% less than 90%, the MIP is collected for 11 years until the balance is 78% of the original amount.

When buying a home, purchasers may not have enough resources for a large down payment.  It is understandable to use the best mortgage available to buy the home.  The next goal should be to manage the mortgage to lower the overall costs.  In this article, we explored eliminating the private mortgage insurance.

 article source:  InTouch

The Difference: Home Insurance and Mortgage Insurance

 

Home Insurance and Mortgage Insurance

Many homeowners with mortgages pay for both types of insurance but only one of them protects the owner.

Homeowner's insurance covers damage to your property and losses from fire, burglary, vandalism, and other named natural disasters.  When an insured has a loss, they file a claim with the insurance carrier which would be subject to the deductible mentioned in the policy.

If the homeowner has a mortgage on the property, the lender will require that the borrower carry adequate insurance on the property and name the lender as an additional insured.  This protects the lender that the home will continue to be sufficient collateral for the loan in case of a loss.

Mortgage insurance is not like homeowner's insurance in that it is solely for the protection of the lender if the borrower defaults on the loan.  Usually, lenders require mortgage insurance on any loan greater than 80% loan-to-value.  Occasionally, they may require it on some loans less than 80% based on their underwriting requirements and possibly, from anticipated risk from the borrower.

VA loans do not require mortgage insurance.  Conventional lenders must remove the mortgage insurance when the loan amortizes below the stated percentage.  FHA loans require mortgage insurance for the life of the loan.

When a property appreciates so that when the owners refinance, the loan-to-value ratio is less than 80%, no mortgage insurance would be required.  This can be a strong motivation for some owners to refinance to save the cost of the mortgage insurance.

Mortgage insurance premiums are not regulated by law like homeowner's insurance is in most states.  Most buyers are concerned about the interest rate on their mortgage, but few question the amount of the mortgage insurance premium.

The homeowner can select the carrier for his homeowner insurance, but the lender determines the carrier for the mortgage insurance.  When you are interviewing lenders, the type of insurance that will be required and the price of the mortgage insurance should be included in the discussion.

article source: InTouch