You can get rid of mortgage insurance PMI sooner than waiting the full 30 years on that loan!
Lots of people considering taking out a mortgage whether it be purchasing or refinancing, do not want to pay mortgage insurance. The reality is MI is due to economic factors beyond our control. Mortgage insurance is required on all FHA loans and on some conventional loans if there is less than 20% equity. In some cases mortgage insurance can be fully tax-deductible and you should check with your tax professional.
Let’s be clear about one thing: mortgage insurance does not benefit you in any way shape or form. Mortgage insurance only benefits the bank -end of story.
So now that we know that getting mortgage with mortgage insurance PMI is potentially inevitable, how do we get rid of it?
The mortgage lender you’ll be making your payments to must remove the mortgage insurance after you have amassed 22% equity in your property. If you have any non-FHA loan, and you are paying mortgage insurance on a monthly basis you should begin prepaying your principal so you can build that needed 22% equity. After you have 20% equity in your property you can request your lender remove the mortgage insurance. So 20% equity means that you have the ability to request the mortgage insurance be removed. At 22% equity the lender must remove the mortgage insurance but you need to remind them to do so.
Okay great so what about an FHA Loan? FHA Loans are insured by the federal government and unlike conventional loans, these loans have two forms of mortgage insurance. There is a UFMIP which is short for upfront mortgage insurance premium and there is a monthly mortgage insurance premium which is also paid to the bank every month. Presently, the upfront mortgage insurance premium is 1% of the loan amount and that is financed in the loan over the term. For example if it is a 30 year fixed rate mortgage the premium is added to the loan amount, then amortized over 360 months.
The monthly mortgage insurance can be removed after 60 months and 20% equity in the property on an FHA loan. You must meet both requirements for these loans. HUD discloses that it’s usually 120 months that mortgage insurance will typically be removed on FHA loans.
How To Get Rid of Mortgage Insurance PMI once and for all.
Most consumers want to get rid of mortgage insurance PMI because they don’t want the added monthly cost. So why not refinance? Put another way, if you have a mortgage with mortgage insurance consider refinancing because rates are favorable. You can take that money you saved monthly by refinancing and begin prepaying your principal balance which will not only save you thousands of dollars in interest, it will also help you build that needed equity for mortgage insurance removal.
Is mortgage insurance really that bad? Short answer no because obtaining a loan today with mortgage insurance is the cost of being able to get a great deal on a home purchase or a very competitive interest rate on a refinance with a high loan to value. Because mortgage insurance is ultimately removable you get the best of both worlds.
Mortgage Insurance loans remain the mechanism for which people are able to obtain mortgage financing in today’s credit environment without 20% equity. If you have questions about mortgage insurance or are thinking about taking out a mortgage loan that might have mortgage insurance built-in, give me a telephone call at 707-217-4000. We can work out the numbers and see what the best solution is.
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