Mortgage insurance, often required when homebuyers make a down payment of less than 20%, can add a significant cost to monthly mortgage payments. However, once you reach 20% equity in your home, you may be eligible to remove this extra expense. Here’s how you can get rid of mortgage insurance in the U.S. once you hit that equity milestone.
Mortgage insurance protects lenders in case you default on your loan. If your down payment was under 20%, you likely had to pay either Private Mortgage Insurance (PMI) or mortgage insurance premium (MIP) for FHA loans. While these insurances can be beneficial for lenders, they can be a strain on your finances.
Your equity is the current value of your home minus what you owe on your mortgage. To figure out your equity percentage, divide your home’s current market value by your mortgage balance. If the result is 20% or higher, you’re in a position to request the removal of mortgage insurance.
Many mortgage companies require a home appraisal to confirm that your home is valued at or above the expectation needed for 20% equity. You can request an appraisal through your lender. Make sure to have documentation ready that supports your home’s value, such as recent comparable sales in your neighborhood.
Check the terms of your mortgage agreement. Some lenders automatically cancel mortgage insurance when you reach 20% equity, while others may require a formal request. Understanding your specific situation will help you navigate the process more effectively.
If your lender doesn’t automatically cancel the insurance, submit a formal request to remove it once you have verified your 20% equity. Include any required documents, such as proof of your home’s current value, a completed form from your lender, and your mortgage information.
Be aware that removal requests may take time to process. Follow up with your lender as necessary, and keep an eye on your next mortgage statement to ensure the insurance charge is gone.
If you can’t remove your mortgage insurance either because of your lender's policies or if you're not close to 20% equity despite your home’s appreciated value, consider refinancing. A new mortgage at a lower interest rate or with a significant reduction in the principal can eliminate the need for mortgage insurance altogether.
The real estate market can fluctuate. Keeping an eye on your home’s value and market trends can help you determine the right time to act, whether for an appraisal request or refinancing.
Getting rid of mortgage insurance once you reach 20% equity can significantly reduce your monthly mortgage payment. Understanding your equity, knowing the terms of your mortgage, and following the proper procedures can help streamline this process. Always maintain communication with your lender and consider your options, such as refinancing, to achieve your financial goals.
