Being a homeowner comes with many financial benefits. Owning a home helps you build credit, it can be a form of long-term savings, and if property values rise, it can grow your wealth.
But becoming a homeowner can be tough, especially if you don’t have enough cash for a down payment. That’s where mortgage insurance comes in to play.
Mortgage insurance is a way for lenders to take on more risky loans. It protects them in case you default on payments. You probably had to add private mortgage insurance (PMI) to your conventional loan if you bought a home with less than 20% down. Or if you have an FHA loan you have a similar payment called a mortgage insurance premium (MIP).
These payments can come to hundreds of dollars each month. And you are required to make them until you meet certain financial conditions of your loan.
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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.
If your payments are current and in good standing, your lender is required to cancel your PMI on the date your loan is scheduled to reach 78% of the original value of your home. If you have an FHA loan, you’ll pay MIP for either 11 years or the entire length of the loan, depending on the terms of the loan.
The good news is that there are steps you can take to remove your monthly mortgage insurance payments.
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.
Knowing where to start can be overwhelming, but we can help.
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