Mortgage insurance can be a costly addition to your monthly payments, ideally suited for buyers who have a smaller down payment. However, once you've built enough equity or reached certain milestones in your mortgage journey, you may want to consider canceling it. This article will guide you through the step-by-step process of canceling mortgage insurance in the US.
There are two primary types of mortgage insurance: Private Mortgage Insurance (PMI) for conventional loans and Mortgage Insurance Premium (MIP) for FHA loans. Knowing which type you have is crucial as the cancellation process may differ.
To cancel PMI, you typically need to have at least 20% equity in your home. To calculate your equity, subtract your current mortgage balance from your home’s market value. You can get a rough estimate of your home’s value through online real estate platforms or a professional appraisal.
Review the terms of your loan agreement. Most conventional loan agreements allow for PMI cancellation as soon as you reach 20% equity. However, specific guidelines may dictate a different timeline for cancellation, so it’s vital to understand your obligations.
If you believe you have reached the required equity threshold, you might need to order a home appraisal to confirm your home’s current market value. Depending on your situation, you may have to pay for this appraisal as a part of the cancellation process.
Contact your mortgage lender or servicer to discuss your intention to cancel your mortgage insurance. Be prepared to provide them with documentation, including the appraisal report and any other necessary paperwork that supports your request.
Once your lender has processed your request, ensure that you receive confirmation that your mortgage insurance has been canceled. This should come in writing, outlining the details of the cancellation. Review your next mortgage statement to confirm that the mortgage insurance premium has been removed.
Maintain copies of all communication and documents related to the cancellation process. This will keep you organized and provide essential evidence if any discrepancies arise in the future.
If you have an FHA loan, canceling MIP works differently. It typically remains for the life of the loan if your down payment was less than 10%. If you made a down payment of 10% or more, you can request cancellation after 11 years. To cancel MIP, you’ll need to refinance into a conventional loan.
Canceling mortgage insurance can save you a significant amount of money each month, but it does require some diligence on your part. By following this step-by-step guide and keeping an eye on your equity, you can successfully navigate the cancellation process. Always consult with your lender for specific questions regarding your mortgage insurance to ensure you have the most accurate and relevant information.
