Mortgage insurance can be a necessary expense for many homeowners, but there are strategies to cancel it and save money. In the U.S., both Private Mortgage Insurance (PMI) and Federal Housing Administration (FHA) insurance can be canceled under certain conditions. Here’s how to navigate the cancellation process for each type of mortgage insurance.
Canceling Private Mortgage Insurance (PMI)
PMI is typically required when a borrower puts down less than 20% of the home purchase price. Here are steps to cancel PMI:
- Reach the 20% Equity Mark: Lenders generally allow you to cancel PMI once your mortgage balance reaches 80% of the home's original value. Use your monthly statements or an online mortgage calculator to track your equity.
- Request Cancellation: Contact your lender to request a PMI cancellation. Most lenders require you to submit a written request.
- Home Appraisal: Be prepared to pay for a home appraisal if your lender requires it to confirm the home's value has increased, resulting in your equity rising to 20%.
- Prove Payment History: Lenders may also review your payment history to ensure you have a good track record of on-time mortgage payments.
- Check for Loan Modifications: If you have refinanced or modified your loan, be sure to check if those changes impact PMI cancellation eligibility.
Canceling FHA Mortgage Insurance
FHA loans come with mandatory mortgage insurance that lasts for the life of the loan unless you refinance. Cancelling FHA mortgage insurance involves the following steps:
- Refinance to a Conventional Loan: Since FHA mortgage insurance is required for the life of the loan, refinancing into a conventional loan without PMI can be the best option if you have sufficient equity.
- Pay Off the Loan Early: If you can pay off your FHA loan early, you can avoid the ongoing mortgage insurance fees. Consider making additional payments toward your principal.
- Wait for the Cancellation Timeline: If your FHA loan originated prior to June 3, 2013, mortgage insurance can be removed once your equity reaches 22%. If it was originated after this date, you will have the insurance for the loan's entirety unless you refinance.
Understand Your Rights
As a borrower, you have rights regarding mortgage insurance cancellation:
- Truth in Lending Act: This law allows borrowers to request PMI cancellation once they achieve the required equity percentage.
- Timely Communication: Lenders are obligated to inform you when you are eligible for PMI cancellation, so always stay in touch with your lender.
Final Tips
Here are additional considerations when looking to cancel your mortgage insurance:
- Stay Organized: Keep records of your payments, home improvements, and any notices from your lender to expedite the cancellation process.
- Monitor Market Trends: Keep an eye on the real estate market. If your home’s value increases significantly, you may reach the equity threshold faster.
- Consult a Financial Advisor: It may also be beneficial to consult with a financial advisor to explore all your options regarding your mortgage insurance and overall financial strategy.
By understanding the steps to cancel mortgage insurance in the U.S., homeowners can effectively save money and manage their mortgage expenses. Knowledge of your rights and proactive communication with your lender are key to successfully navigating this process.
