In 20012 the FHA made the mortgage insurance on their loans temporary, it would cancel out when the borrower reached 22% equity. In July of 2013 they changed that rule and made mortgage insurance permanent for any borrower who put less than 10% down on their purchase. That means borrowers who put the minimum 3.5% down, will have permanent mortgage insurance on their loan.
What is FHA mortgage insurance?
FHA mortgage insurance is an added cost onto your monthly payment to protect the lender against the homeowner defaulting. If the home owner defaults on their payments, the lender is guaranteed a percentage of the money they lent out. This seems troublesome to most home buyers, but it actually allows more people to attain home ownership quicker because the lenders are willing to loan the money knowing they will get it back.
How to cancel FHA mortgage insurance
Now you see the reason for mortgage insurance, and granted it doesn’t make it any easier to pay, you can understand how to get rid of it. The easiest way to remove this is to refinancing the mortgage. Refinancing can allow you to experience several benefits, one of which is a lower rate, with home values soaring it is a likely time to try. If you refinance and have a minimum of 10% equity, the mortgage insurance becomes temporary. At the same time you are lowering your rate you are also decreasing the cost of the insurance. You can easily see how a refinance can help by inquiring here.
Other potential benefits of refinancing
- Lowering your monthly payment
- Paying the mortgage off faster with a flexible term mortgage
- Taking additional money out for home repairs
- Consolidating higher interest debt like credit cards and personal loans
- Switching to a conventional mortgage and getting rid of mortgage insurance entirely
The take away
Refinancing doesn’t always help, it’s very sensitive to the market we are in. But we are experiencing high home values right now, you can check the value of your home by using our free value estimator.
So if you are nagged by that monthly mortgage insurance bill it may be a good time to inquire about a refinance and see if you can actually save money, or if you are better off where you currently are. Feel free to sign up for mortgage rates to keep an eye on them yourself. Or you can contact a qualified loan officer directly.
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