Every so often I get asked how do you get rid of mortgage insurance? And the answer depends on a few things! Assuming a conventional loan, it depends on how long you have had the home and how much equity you have. Let’s break it down. The Homeowners Protection Act of 1998 sets the guidelines for conventional loans.
For a single family home that is your primary residence, the MI will automatically terminate when your mortgage gets to 78% of the original value. But how can you get rid of it sooner? You can request to have it removed once you get to 80% of the original value. If you feel your home has increased in value and you have been in the home for at least two years, you can ask your mortgage company to cancel the MI. If you have been there 2-5 years, your loan to value must be at 75% of the current value. If it’s been over 5 years, you just need the value to be at 80%. Typically your servicer (mortgage company) will require that you have some sort of appraisal done, you will need to pay for that and it’s ordered by the servicer.
For those that are in a 2-4 unit primary residence or 1-4 unit investment property, the rules are a bit different. It also depends whether the loan is serviced by Fannie Mae or Freddie Mac. Fannie Mae will drop the MI once you reach 70% of the original value if you request it. They will also drop it if you reach 70% of the current value (with an appraisal) if you request it. Automatic termination occurs the month following the midpoint of the amortization schedule. If you have a loan serviced by Freddie Mac, they will drop MI once you get to 65% of the original value. You can request an appraisal to have it removed once you get to 65% of the current value. Freddie Mac will not automatically terminate MI on these homes.
There are some additional rules that have to be followed. You must be current on your mortgage payments, you can’t have had any late payments in the prior 12 months and no late payment of more than two months in the last 24 months.
You can try to eliminate MI faster by paying ahead on your mortgage or by making substantial improvements to the home to increase the value.
For those with FHA loans, the mortgage insurance typically never goes away. If you put down at least 10% when you purchased the home, the MI will go away after 11 years. Otherwise you need to refinance to eliminate mortgage insurance.
I always suggest reaching out to your realtor or loan officer to see where the value of your home might be. You don’t want to pay for an appraisal if the value isn’t there. You can also reach out to your servicing department on the mortgage and see what they would require.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
