Mortgage insurance is often a requirement for borrowers who make a down payment of less than 20% when purchasing a home. However, once you reach 20% equity in your home, you may be eligible to cancel your mortgage insurance. Here’s how you can do it efficiently and save money on your monthly payments.
Understanding Mortgage Insurance
Mortgage insurance protects lenders in case borrowers default on their loans. There are two main types: private mortgage insurance (PMI) for conventional loans and mortgage insurance premium (MIP) for FHA loans. Knowing which type applies to you is essential for the cancellation process.
Steps to Cancel Mortgage Insurance
1. Confirm Your Equity
Before initiating the cancellation process, determine whether you’ve reached 20% equity in your home. You can calculate your equity by taking the current market value of your home and subtracting the amount you owe on your mortgage. You may also consider getting a professional appraisal for a more accurate valuation.
2. Review Your Loan Documents
Check your initial loan agreement to understand the specifics of your mortgage insurance. It will outline the conditions under which you can cancel it and any necessary requirements, such as having a good payment history.
3. Contact Your Lender
Once you have confirmed that you have 20% equity, reach out to your lender to request the cancellation of your mortgage insurance. You will typically need to provide proof of your home’s current value and any documentation of your payment history.
4. Submit a Written Request
Prepare a formal written request for the cancellation of your mortgage insurance. Include your loan number, personal information, and the details of your request. Attach any supporting documents, such as the appraisal report and proof of on-time payments.
5. Follow Up
After submitting your request, follow up with your lender to ensure they are processing your cancellation. This can take several weeks, so be patient but persistent. Make sure to keep a record of all communications.
6. Monitor Your Statements
Once your mortgage insurance is canceled, check your monthly mortgage statement to ensure the PMI or MIP is no longer included. If it appears on your statement, contact your lender immediately.
Exceptions and Considerations
It’s important to note that some lenders may have specific guidelines or exceptions. For example, if you have an FHA loan and the loan originated after June 3, 2013, you may have to refinance to remove mortgage insurance entirely. Always consult your lender for specifics regarding your loan.
Conclusion
Canceling mortgage insurance after reaching 20% equity can lead to significant savings. By understanding the process and working closely with your lender, you can eliminate this additional expense and enjoy the full benefits of your home equity.
