Mortgage insurance, and how to stop paying it.
It protects the lender, you pay for it, and a great many homeowners keep paying long after they could have stopped. Here is how each kind works and how to get off it.
You pay it, the lender is covered.
Mortgage insurance is one of the more misunderstood lines on a mortgage statement, largely because the name suggests it protects you. It does not. It protects the lender against loss if the loan defaults, and you pay the premium.
That is not a scandal, it is the trade that makes low down payment lending possible at all. Without it, the only people buying would be those with a large amount of cash, which in this county would be very few first-time buyers. It is the price of getting in sooner.
But because it is a cost with no benefit to you, the entire goal is to stop paying it as soon as you legitimately can. Which is exactly where most of the money gets left on the table, because how you stop depends completely on which kind you have, and most people do not know.
The three situations
- Conventional loan Insurance is removable once you have enough equity. There is a process to request it.
- FHA loan Depending on the loan, it may last the life of the loan. Refinancing may be the only exit.
- VA loan No monthly mortgage insurance at all. A one-time funding fee instead, sometimes waived.
- Which do you have Worth confirming before assuming you are stuck with it.
Two ways off, and one is faster.
On a conventional loan, mortgage insurance is not permanent, and there are two separate routes to ending it.
The first is automatic. At a defined point in the loan schedule it comes off on its own, without you doing anything. It is reliable and it is the slower of the two.
The second is by request, once you have reached the required equity. This is usually available meaningfully earlier than the automatic point, and it does not happen unless you ask. That gap between when you could have stopped and when it stops by itself is where homeowners quietly overpay, sometimes for years.
There is also a version people rarely consider: appreciation. If your home is worth more than you paid, the equity may already be there even though you have not paid the balance down that far. The lender will generally want the value confirmed, and the cost of confirming it is usually small against the premiums it ends.
Worth checking now
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1
Which loan type do you have Conventional and FHA behave completely differently here.
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2
How much equity do you have today Including any appreciation, not just what you have paid down.
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3
Are you past the request threshold If so, the saving starts as soon as you ask.
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4
Would a valuation pay for itself Usually yes, if appreciation is what gets you there.
A different set of rules.
FHA mortgage insurance is where the assumption that equity solves everything falls apart, and it catches people out because the conventional rules are what most articles describe.
Depending on when the loan was taken out and how much was put down, FHA mortgage insurance can last for the entire life of the loan. You can pay the balance down substantially, watch the home appreciate, and still be paying it, because the removal rules are not based on the same thing.
When that is the situation, refinancing into a conventional loan is generally the only route off it. And then the ordinary break-even test applies: the insurance saving has to pay back the refinance costs within the time you plan to keep the home.
None of this makes FHA the wrong choice. It is often the reason a purchase was possible in the first place. It just means the exit needs to be planned rather than assumed.
If you have an FHA loan
- Find out whether your insurance is scheduled to end or lasts the life of the loan
- If it lasts, refinancing to conventional is usually the only exit
- Run the break-even before assuming a refinance is worth it
- Compare against conventional and VA financing
- If you served, a VA loan carries no monthly mortgage insurance at all
Mortgage insurance, answered.
What is mortgage insurance actually for?
Is mortgage insurance a reason not to buy?
When does PMI come off a conventional loan?
Can rising home values remove it faster?
Does FHA mortgage insurance work the same way?
Should I refinance just to remove mortgage insurance?
Do VA loans have mortgage insurance?
How do I know which kind I have and where I stand?
Find out if you can stop paying it.
Send me your mortgage statement and roughly what you think the home is worth now. I will tell you which kind of insurance you are paying, whether you can request removal, and whether a refinance would pay for itself. No cost and no obligation.
Please read. Everything on this page is general information about home financing. It is not a loan commitment, an offer to lend, or a guarantee of any rate, term, cost or approval. Programs, guidelines, limits, fees and eligibility are set by lenders, investors and government agencies, and they change over time without notice. What is described here may be different by the time you read it. Every borrower and every property is different, and none of this was written with your particular situation in mind. Nothing here is legal, tax or financial advice. Speak with a licensed loan officer about your own circumstances before making any decision, and confirm current terms in writing. Licensing details appear in the footer.
Read This Before You Buy in Ventura County
The 5 ways buyers overspend here, and how to avoid every one.
- The 5 ways buyers overspend here, and how to avoid each one
- Real payment math for Ventura County prices, so you don't overbuy
- The questions that save you money with any lender or agent (including me)
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Edgar Limon · Realtor & Loan Officer
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