Hey there, Evan Swanson here to talk to you today about the elimination of mortgage insurance premiums from a conventional conforming loan.
There seems to be a lot of misinformation and confusion out there about when a consumer can get mortgage insurance premiums eliminated from their mortgage payment.
I like to describe it to customers from a best case and a worst-case perspective. Worst case is what’s written in the law under the Homeowners Protection Act, which is the federal statute, which governs this topic.
What that law says is that a lender can require mortgage insurance premiums to be paid so long as the remaining loan balance is scheduled to be above 78%-80% of the home’s original value. Original value is defined as the lessor of the purchase price or appraised value at the time the loan was taken out.
On a conventional conforming loan today, with 10% down at today’s interest rates it could take a consumer upwards of 6 years before they reach the point at which they have enough equity that they can have the mortgage insurance eliminated.
Many loan servicers will allow consumers to get out of the mortgage insurance sooner than that, even though federal law doesn’t require them to. I’ve seen policies, which state that after a year, if the consumer has paid down the principle to below 80% of the original value, they can have the insurance removed.
I’ve seen others that show after two years, with the cost of an appraisal, if the consumer can demonstrate a 20% or more equity position that the mortgage insurance can be eliminated at that time. Typically, all these are going to require a clean payment history and some sort of documentation to the lender that the value on the property is what it is.
If you want to learn more about your options to eliminate mortgage insurance or if you want to ask questions, I’d love to be a resource for you and your family. Please, let me know how I can help. Have a great day.