Mortgage insurance is often a necessary expense when you take out a loan with less than 20% equity in your home. However, once you reach that 20% equity mark, you may want to cancel your mortgage insurance to save money. This article will guide you through the steps to efficiently cancel mortgage insurance once you have 20% equity in the U.S.
Understanding Mortgage Insurance
Mortgage insurance protects the lender in case you default on your loan. Borrowers typically pay for this insurance until they have built enough equity in their home, which is generally considered to be 20%. This can add a significant cost to your monthly mortgage payment, so knowing how to cancel it is crucial once you hit that threshold.
Steps to Cancel Mortgage Insurance
1. Verify Your Equity
Before you proceed to cancel your mortgage insurance, you must accurately determine your home equity. To do this, calculate the current value of your home and subtract the remaining balance on your mortgage. If this amount is 20% or more of your home’s value, you are ready to move forward with cancellation.
2. Contact Your Lender
Reach out to your lender or mortgage servicer to inform them of your request to cancel the mortgage insurance. Most lenders require a written request for this purpose. During the conversation, inquire about any specific documentation they may need.
3. Provide Documentation
Your lender will likely require proof of your home’s current valuation. This may include a recent appraisal, a comparative market analysis from a real estate agent, or even recent tax assessments. Ensure that the documentation you provide clearly demonstrates that your equity has reached the required 20%.
4. Pay for an Appraisal (if required)
In some cases, your lender may require a formal appraisal to assess your home’s value. Be prepared to cover the cost of this appraisal, which can range anywhere from $300 to $600.
5. Submit Your Request for Cancellation
Once you have gathered all the necessary documentation, submit your request for cancellation. Ensure that you keep a copy of everything you send for your records. Your lender is typically required to respond within 30 days of receiving your request.
6. Follow Up
If you do not hear back from your lender after submitting your cancellation request, do not hesitate to follow up. It’s important to ensure your request is being processed and to confirm that your mortgage insurance is canceled.
7. Monitor Your Monthly Statements
After you’ve received confirmation that your mortgage insurance has been canceled, stay vigilant by checking your monthly mortgage statements. Make sure that the insurance premiums no longer appear in your payment details.
Consider the Alternatives
If you find that cancelling your mortgage insurance is not feasible or if you still do not have enough equity, you might want to explore alternatives. Some options include refinancing your mortgage to a new loan with 20% equity, which may offer better terms and possibly eliminate the payment of mortgage insurance.
Conclusion
Canceling mortgage insurance once you have achieved 20% equity can lead to substantial savings on your monthly payments. By understanding the process and taking the right steps, you can ensure that you no longer bear this unnecessary cost. Be proactive and stay informed about your mortgage terms, so you can maximize your savings as a homeowner.
