Mortgage insurance protects lenders in case a borrower defaults on their loan. Many homebuyers are required to pay for this insurance, especially with a down payment of less than 20%. However, there may come a time when homeowners want to cancel their mortgage insurance, and the question arises: can you cancel mortgage insurance early with your lender’s approval?
In short, yes, you can potentially cancel your mortgage insurance (MI) early, but this largely depends on your lender's policies and the terms of your loan agreement. Here’s what you need to know:
Mortgage insurance can be cancelled under certain conditions outlined in the Homeowners Protection Act (HPA). Generally, borrowers have the right to request mortgage insurance cancellation once they have built up at least 20% equity in their home. This is typically calculated based on the current home value, not just the purchase price. However, early cancellation often requires the lender's approval.
1. Equity Requirements: To cancel MI early, you typically need to demonstrate that you have at least 20% equity in your home. If your home has appreciated significantly since you purchased it, you might qualify for cancellation sooner than expected.
2. Loan Terms: Review your loan agreement for any specific terms about mortgage insurance cancellation. Some loans may have strict guidelines that limit cancellation options.
3. Payment History: Lenders tend to consider your payment history when deciding on an early MI cancellation. A solid payment record can increase your chances of approval.
4. Requesting an Appraisal: In some cases, lenders may require a new appraisal to confirm the current value of your home. If the appraisal shows that your property value has increased, this can help your case for early cancellation.
If you believe you qualify for early cancellation, follow these steps:
1. Check Your Equity: Assess your current equity by determining your home's current market value and comparing it to your remaining mortgage balance.
2. Contact Your Lender: Reach out to your mortgage lender to discuss your desire to cancel MI. Inquire about their specific policies and any documentation you may need to provide.
3. Submit a Request: If your lender allows it, submit a formal request for cancellation along with any necessary documentation, such as proof of equity and a history of timely payments.
4. Schedule an Appraisal: If required, arrange for a professional appraisal of your home to establish its current market value.
5. Review and Await Approval: After submitting your request and all required information, wait for your lender’s response. They will inform you whether your mortgage insurance can be canceled.
Canceling mortgage insurance early with your lender’s approval is possible, but it’s essential to meet specific criteria and follow the lender’s procedures. Taking proactive steps to understand your rights and keeping open communication with your lender can significantly aid in the cancellation process. If you're considering this option, consulting with a mortgage professional may also provide further tailored guidance.
