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Mortgage insurance is an insurance policy that protects lenders against any losses if you fail to make your monthly mortgage payments. You’re typically required to make PMI or MIP payments until you meet certain financial conditions for your loan type.
PMI is typically required on conventional loans with a down payment of less than 20%. It’s paid as part of your monthly mortgage payment. MIP is the mortgage insurance that’s required on Federal Housing Association (FHA) loans regardless of your down payment amount.
The amount you pay is based on several factors including:
As a rule, you can expect to pay 0.5% to 1% of your total loan amount per year in mortgage insurance. For example, if you have a $250K home loan, that will equal anywhere from $1,250 to $2,500 per year or between $104 and $208 per month.
PMI is required until your loan has met certain conditions, like having 20% equity in your home based on its original value. Once your home reaches 20% in equity, you can contact your lender and request that they cancel your PMI. If your payments are current and in good standing, your lender is required to cancel your PMI on the date your principal loan balance is scheduled to reach 78% of the original value of the home.
For FHA loans, MIP is required for either 11 years or the entire length of the loan, depending on the terms of the loan. Another option is to refinance from an FHA to a conventional loan to eliminate MIP.
The good news is that there are steps you can take to remove your monthly mortgage insurance payments.
If your loan has met certain conditions and your loan to original value (LTOV) ratio falls below 80%, you may submit a written request to have your lender cancel your PMI. (To get more information about canceling your PMI, contact your lender.) You can calculate your LTOV by dividing your current unpaid principal balance by the purchase price of your home or the appraised value at closing, whichever is less.
The value of your home may have gone up due to rising home prices or because you’ve made improvements like upgrading your kitchen or remodeling your bathroom. Make sure to check with your lender for any rules or requirements before they order your appraisal.
Another advantage to a higher-value housing market is that you may have the equity you need to refinance and avoid paying PMI. Or, if you have an FHA loan, you may be able to refinance to a conventional loan to eliminate your MIP. And, if you have other high interest debt, you may be able to consolidate it into your new home loan, possibly saving you hundreds more per month.
If you’re ready to learn more about mortgages and refinancing, or have questions about eliminating PMI or MIP, we're here to help. Reach out to a mortgage loan officer to discuss your situation over the phone, via email or within a branch.
The cost of mortgage insurance depends on your original down payment, your credit score and what type of loan you have. But you can normally expect to pay 0.5% to 1% of your total loan amount per year in mortgage insurance.
Not at this time. However, tax codes are continually changing. You’ll want to consult your tax advisor regarding tax deductibility.1
No. VA loans don’t require private mortgage insurance or any other type of mortgage insurance. They do have a VA funding fee that you must pay at closing, or you can roll it into your loan balance.
No. USDA loans don’t require private mortgage insurance. They do require borrowers to pay a guarantee fee, which works like mortgage insurance.
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