As values have gone up over the past couple of years it might be a good time to look into eliminating your mortgage insurance. If you purchased a home through an FHA loan or other type of mortgage that required mortgage insurance because of a low to zero down payment, the mortgage insurance will not automatically drop off and will carry on the life of the loan. These mortgage insurance premiums can range in price depending on the loan and length. The FHA upfront premium is 1.75% of the loan and is usually rolled into your monthly mortgage payment. However if you refinance your FHA Mortgage within the first 3 years of closing the government will give you an upfront MIP refund on your unused mortgage insurance premium. It’s based on your original MIP payment and decreases by 2% points annually until no money remains.
In the past, homeowners could cancel their mortgage insurance if the home falls below the 80/20 value. There were certain requirements such as being current or made additional payments but that is not the case any longer.
At this point, homeowners must refinance in order to remove PMI or private mortgage insurance. PMI and MIP are different. Private mortgage insurance is part of the loan guidelines set out by Freddie Mac and Fannie Mae. It’s also included in most investors conventional loans when at least 20% of a home’s purchase price is not provided as a down payment. Mortgage insurance, in general, is required for most home loans that don’t have a 20% down payment. PMI is an insurance policy used in conventional loans that protects lenders from the risk of default or foreclosure. With this type of mortgage insurance, you will make a premium payment every month until it is either terminated or canceled due to a refinance.
There are a single premium PMI, where the borrower would pay the mortgage insurance premium upfront in a single lump sum either at closing or financed into the mortgage. This is fairly uncommon though.
Mortgage insurance premiums or MIP, is an insurance policy used in FHA loans if you’re down payment is less than 20%. It’s either assessed up front or an annual fee that is calculated every year and paid in 12 installments, typically with your mortgage payment. I know, it can be confusing but speaking to a lender about the best option, what you have, and how to get rid of it is really the only way to determine the best course of action.
Refinance may also be an option. If your home has increased in value you may be eligible for a refinance and lower your monthly payment, cash out for home improvements or reduce your term. Now is a great time before rates rise over 5%. This is also the best way to get rid of a 2nd mortgage if your home can appraise for the proper amount.
Give me a call anytime to learn more and to find out the value of your home and if you qualify for a refinance or a termination of mortgage insurance.
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