Mortgage insurance can be a financial burden, especially if you’ve been making timely payments and building equity in your home. Fortunately, there are specific steps you can take to remove it, presenting you with significant savings each month. This guide details how to remove mortgage insurance once you've built equity in your home.
Mortgage insurance is typically required when you have a conventional loan and make a down payment of less than 20%. It protects lenders in case of default. However, once your home appreciates in value, and your equity increases, you may be eligible to remove this insurance.
To determine if you can remove your mortgage insurance, first calculate your home equity. Home equity is calculated by subtracting your current mortgage balance from your home's market value. For example, if your home is worth $300,000 and you owe $240,000, you have $60,000 in equity.
Most lenders require you to have at least 20% equity in your home to eliminate mortgage insurance. This means that if your home’s current market value is $300,000, you should ideally owe less than $240,000 on your mortgage.
If your equity situation has improved significantly, request a home appraisal. A professional appraisal can determine the current market value of your home. If the appraisal shows that your home has appreciated enough to give you 20% or more equity, you can proceed with removing the mortgage insurance.
Once you have confirmation of your equity through appraisal, contact your lender. Inform them of your desire to remove the mortgage insurance. They may require verification of the appraisal and your payment history. Be prepared with all necessary documentation and information to streamline the process.
If your lender is unwilling to remove the mortgage insurance, consider refinancing your mortgage. This option can be beneficial if interest rates have dropped since you purchased your home. A refinance can eliminate the mortgage insurance requirement entirely, provided your equity has reached the necessary threshold.
Familiarize yourself with the terms of your mortgage. Many loans have clauses that automatically terminate mortgage insurance after reaching a certain equity threshold or after a specific timeframe, which can differ by lender. Review your loan documents or consult your lender to understand these terms.
If you have an FHA loan, removing mortgage insurance is a bit more complicated. Originally, FHA insurance lasts for 11 years with a 10% down payment; however, it may last for the life of the loan if you made a lower down payment. In this case, refinancing into a conventional loan might be your best workaround.
Removing mortgage insurance after building equity in your home can lead to significant savings. By assessing your equity, contacting your lender, and exploring refinancing options, you can streamline the process and enhance your financial standing. Embracing these steps can put more money back in your pocket, empowering you to invest in your home and future.
