Removing Mortgage Insurance

By this time, it is well known that the real estate and mortgage markets went on an absolute tear since 2020. Home price appreciation has been at its all-time high during an unbelievably short period of time. Additionally, mortgage rates plummeted and made borrowing money very affordable for millions of households across the country. Even with great migrations to and from some of our most popular states, and a steep increase of cash offers and high down payments, we still saw hundreds of thousands of people use low down payment conventional purchase programs, and FHA purchase programs in order to buy their first home. With these low down payment programs comes mortgage insurance.

The bottom line is this, every month you make your mortgage insurance payment, that is money you could be saving if you were able to refinance your property today and eliminate that feature. Provided you have 20% equity or more you could be eligible to do a rate and term refinance or cash out refinance in order to eliminate your monthly mortgage insurance. With the majority of the country experiencing double digit home price gains over the last 2 years it is highly likely your home qualifies. (Remember, equity is the gap between your current loan amount and your property value. Therefore, the longer ago you purchased, the more mortgage payments you have made, thus decreasing your current loan balance – at the same time values have sky rocketed…a doubling effect in your favor.)

At first glance you might think that $100 or $200 a month may not mean very much to your budget, however overtime look at how much money you could be saving by taking the proper action on this today. And if your monthly mortgage insurance is higher than the amounts illustrated below, the monthly, annual, and long term savings are even greater!

As you see in the chart below both of these scenarios we recently financed have mortgage insurance. Look at the collective total amount paid just in the first five years of ownership. Historical refinance data shows that a majority of homeowners refinance or move within five to seven years so it is realistic for you to see what five years of paying mortgage insurance might look like and whether or not you are going to be satisfied while knowing you could do something about it right now.

*Illustration represents current monthly, annual, and 5-year cost of mortgage insurance,

which when removed is money saved by the borrower(s).

(Recent closing statement for a Conventional Fixed Rate Purchase Loan with monthly mortgage insurance)

Removing your mortgage insurance without refinancing can take several years, and your bank is unlikely to be proactive about when you can and should do this. Typically, when your loan balance is 78% of your original balance, your mortgage insurance can be removed. However, if you have 20% home equity right now and you refinance, you will not even need mortgage insurance. If you purchased a home anytime since 2017 and still have mortgage insurance, you are a prime candidate to have that mortgage insurance removed with a rate and term refinance or cash out refinance.

The decision to remove your mortgage insurance seems like a pretty simple decision, but what about the rate environment?

This is a key factor to determining how you want your homeownership experience to look over the long term. If you are that family that plants themselves in a place for 5 or more years at a time then the decision to remove your mortgage insurance may be less of a rate sensitive decision since you are planning your monthly money on a longer time horizon. In an increasing rate environment, it is better to secure the lowest rate possible now vs. an increased rate down the line. And since you are removing your mortgage insurance, that money you are saving every month can be directed at any other financial objective you have in store for yourselves.

Whether you are making a short term or long-term decision, it is worth exploring the removal of your mortgage insurance. Your local mortgage expert can help you ascertain what mortgage decision is right for you given your goals and current mortgage outlook.

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.