Remove your Mortgage Insurance

We know there are a lot of great first-time homebuyer programs out there. Many of them have low down payment requirements, but they also come with mortgage insurance. While it does help you get into that first home with little money down, mortgage insurance is kind of a necessary evil, rather than a buyer’s choice, know what we mean?

For those hearing about mortgage insurance for the first time, mortgage insurance is an insurance policy a bank takes out to cover the risk of borrower default. If a homeowner becomes unable to pay their mortgage, and fall delinquent, the mortgage insurance policy will cover them from loss. The catch is the homeowner pays the policy premium as part of their monthly payment. Recently we have seen an emergence of borrowers who seek to get out of this commitment by refinancing their home. We have also been talking a lot about the Federal Reserve and their monetary policy actions coming up which will impact the mortgage market. This week, these worlds collide with new information and evidence of what’s to come in 2022.

On December 15, 2021 Fed Chairman Jerome Powell delivered remarks following their 2-day winter meeting. With inflation running hotter than it has in decades, many analysts were expecting an announcement the fed would speed up their tapering program – and – also increase their short-term rate in 2022. Jerome Powell did not disappoint. The Fed Chairman announced they will accelerate their reduction of bond buying by twice the rate they initially committed to. If you’ve been following us online, we have been talking about this on our video channel for weeks. Mid-2022 was the target for the fed to be completely removed from their bond buying program, and now that end date has been moved up to March 2022. Also, as expected, the fed is projecting they will raise their short-term rate 3 times in 2022.

So what does that mean?  It means that we should expect higher rates on things like credit cards, car loans, lines of credit, corporate credit, etc…And we should realistically expect a reaction by the mortgage market which will impact housing in the coming year.

Chula Vista Mortgage Refinance

For homeowners who are still making monthly payments that include mortgage insurance, now is the time to take a second look at refinancing with your local mortgage expert. When you speak with a mortgage expert in your area you should expect them to have their finger on the pulse of the mortgage market regarding rates, but also how home values in the region are being affected by monetary policy such as the Fed’s recent decisions. If you have a conventional loan with less than 20% down at time of purchase, you may be in the perfect position right now to refinance and eliminate your mortgage insurance. With home values appreciating at a higher rate than in the last 10+ years, most homeowners will meet the 20% equity requirement to refinance into a mortgage with NO mortgage insurance. For homeowners that meet this criteria, the monthly savings could be hundreds of dollars.

The same applies to homeowners who used a FHA 3.5% down program to purchase their home in the last 24-36 months.  Although your monthly payment may be lower than if it were a conventional purchase loan in the short term, looking down the road it is wise to consider refinancing into a conventional loan without mortgage insurance. Especially if you have benefitted from the recent home price appreciation (we’re willing to bet you have). Again, for homeowners who are in this financial scenario, a refinance to eliminate mortgage insurance may save you hundreds of dollars a month.

Here’s a few quick tips on what to cover when you talk with your local mortgage expert.

1. Analyze your monthly savings apples to apples. Meaning, compare your current monthly payment with mortgage insurance to your proposed monthly payment without mortgage insurance. The obvious goal here is to reduce your monthly payment today, but that should also save you money in the long-term interest savings via your interest rate. Additionally, we would like to remind you that your current mortgage insurance payment is applied to the premium of the insurance policy the bank has taken out on their behalf in the event you default. There is no tangible benefit to you insurance-wise and only additional monthly expense until you can remove this cost.

2. Find out what your estimated property value is. You will want to know if you have 20% equity or more in your property before going through the loan process, pulling credit, and ordering an appraisal. A simple desktop valuation method should give your mortgage expert a sense of how reasonable a refinance to remove mortgage insurance will be. Most homeowners today have plenty of equity to meet this requirement, and even if you are close, talk with your local mortgage expert on what you can do to qualify for a new mortgage without mortgage insurance.

3. Get your ducks in a row. Once you know your property will appraise to reveal 20% equity or more, it’s time to prepare your documents. It is always to your advantage to be organized so you can submit them for review, and eventual submission to underwriting, in a timely and orderly fashion. Your mortgage expert will walk you through the process and the better prepare you are on your side so the refinance will go as swiftly and smoothly as possible.

4. BONUS: Plan in advance how you will apply your monthly savings to a financial goal. You may want to apply that monthly savings to paying down consumer debt, growing your savings, or even investing it. No matter what you choose to do we know you will benefit from a lower monthly payment. The takeaway here is to be proactive with your finances and leverage your monthly savings.

If you would like to speak with our team about your home loan questions, please complete the form below. You can also start your loan application online by APPLYING NOW.

Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.