Mortgage insurance, often required for loans with lower down payments, is an additional cost that many homeowners face. If your financial situation has improved or if you've built sufficient equity in your home, you might be considering cancelling your mortgage insurance. The process of cancelling mortgage insurance in the U.S. can vary based on the type of mortgage insurance you have. This article outlines the essential steps to help you navigate this process efficiently.
Understanding Mortgage Insurance Types
There are primarily two types of mortgage insurance in the U.S.: Private Mortgage Insurance (PMI) and Federal Housing Administration (FHA) mortgage insurance. PMI is typically associated with conventional loans, while FHA mortgage insurance applies to FHA loans. Understanding the type of insurance you have is crucial, as the cancellation process differs slightly.
Step 1: Evaluate Your Equity
To qualify for cancelling PMI, you generally need to have at least 20% equity in your home. This means your mortgage balance should be less than 80% of your home's current value. You can determine your equity by finding out the current market value of your home, which can be done through professional appraisals or comparative market analysis (CMA).
Step 2: Check Your Loan's Terms
Review the original loan agreement for any specific stipulations regarding mortgage insurance cancellation. Sometimes, lenders have particular requirements that may include waiting for a certain time period or reaching a specific payment history before allowing cancellation.
Step 3: Request Cancellation
For PMI, you can contact your lender or mortgage servicer to request the cancellation. They will typically require you to provide evidence of your home’s current value, which may include a recent appraisal. Be prepared for a possible fee associated with the appraisal process. It's advisable to make this request in writing for documentation purposes.
In the case of FHA insurance, cancelling it is a bit more complicated. If your FHA loan originated after June 3, 2013, you may need to refinance into a conventional loan to eliminate FHA mortgage insurance, as it does not automatically cancel when your loan reaches 78% of the original home value.
Step 4: Confirm Cancellation and Follow Up
Once your lender processes the request, they should inform you of the cancellation in writing. This is an important document for your records. Always follow up to ensure that your payment statements reflect the change and that mortgage insurance is no longer charged to your account.
Step 5: Monitor Your Loan
After cancelling your mortgage insurance, it's wise to monitor your mortgage statements to ensure charges reflect the new status of your loan. If you notice any discrepancies, address them immediately with your lender.
Conclusion
Cancelling mortgage insurance can lead to significant savings for homeowners, allowing them to allocate those funds toward other financial goals. By understanding the process and taking the necessary steps, you can seamlessly eliminate this extra expense and enjoy the benefits of homeownership even more.
