Can You Remove Mortgage Insurance?

October 10, 2024•3 min read

Can You Remove Mortgage Insurance?

Mortgage insurance can be a costly addition to your monthly payments, but the good news is that it's not always permanent. Depending on the type of loan and your financial situation, you may be able to remove mortgage insurance under certain conditions. At Patriot Mortgage we’re here to help you understand how and when you can get rid of this added expense.

What Is Mortgage Insurance?

Mortgage insurance is typically required for borrowers who make a down payment of less than 20% of the home’s purchase price. It protects the lender in case the borrower defaults on the loan. For conventional loans, this is called Private Mortgage Insurance (PMI), while FHA loans require their own form of mortgage insurance, known as Mortgage Insurance Premium (MIP) (Consumer Financial Protection Bureau - PMI Explained, https://www.consumerfinance.gov/ask-cfpb/what-is-private-mortgage-insurance-en-122/).

How to Remove PMI on Conventional Loans

If you have a conventional loan with PMI, you may be able to remove it once you have built up enough equity in your home. Typically, PMI can be removed once you’ve paid down your mortgage to 80% of the original loan amount. You can request PMI removal in writing when your loan-to-value (LTV) ratio reaches 80%. Alternatively, your lender is required to automatically cancel PMI once your LTV reaches 78%, as long as you are up-to-date on your payments (Federal Trade Commission - PMI Removal Rules, https://www.consumer.ftc.gov/articles/0151-mortgage-insurance).

How to Remove MIP on FHA Loans

Removing mortgage insurance for FHA loans is a bit different from conventional loans. For loans originated after June 3, 2013, if your down payment was less than 10%, you will be required to pay MIP for the life of the loan. However, if you put down 10% or more, you can have the MIP removed after 11 years. In many cases, homeowners with FHA loans refinance into conventional loans to eliminate MIP altogether once they have sufficient equity in their home (HUD - FHA Mortgage Insurance Guidelines, https://www.hud.gov/program_offices/housing/comp/premiums).

Appreciation and Refinancing

If your home’s value has increased since you purchased it, you might reach the necessary equity threshold sooner than expected. In such cases, you can request a new appraisal to prove that your LTV is below 80% and ask for PMI removal. Another option is to refinance your mortgage to remove PMI or MIP, especially if your home has appreciated significantly. Refinancing can not only remove mortgage insurance but also potentially secure a lower interest rate (Bankrate - When to Refinance, https://www.bankrate.com/mortgages/should-i-refinance-my-mortgage/).

When Mortgage Insurance Cannot Be Removed

There are certain situations where mortgage insurance cannot be removed, such as with FHA loans that were originated with less than 10% down after June 3, 2013. Additionally, if your loan is considered "high-risk" or you have a second mortgage, PMI removal may be more difficult. Always check with your lender to understand the specific terms of your loan (The Mortgage Reports - PMI Removal Guide, https://themortgagereports.com/74057/how-to-cancel-pmi-private-mortgage-insurance).

Final Thoughts

Removing mortgage insurance can lead to significant savings on your monthly payments. If you’ve built up enough equity in your home, consider reaching out to your lender to discuss your options. Whether you’re looking to remove PMI on a conventional loan or refinance out of an FHA loan with MIP, Patriot Mortgage is here to help guide you through the process.

References: