Ah... that pesky Mortgage Insurance- Isn’t there a way to get rid of that extra monthly payment? Good news! There are ways to eliminate that additional Debt. But first, let’s go over what Mortgage Insurance is.
What is Mortgage Insurance?
Mortgage Lenders often require Mortgage Insurance for certain types of loans; This insurance lowers a Mortgage Lenders’ financial risk and enables homeownership- even if you don’t have enough cash to put down 20% for down payment upfront.
How do I get rid of the Mortgage Insurance Payments?
Ever heard of LTV? Understanding LTV (loan-to-value ratio) can be key in ridding yourself of Mortgage Insurance. Your LTV (loan-to-value ratio) basically measures how much equity you have in your home. Figure the following equation:
(Your current loan balance) ÷ (Original value of your property) x 100 = Your LTV
For example, if you put 10% down on a 200,000 home, your initial loan balance would be $180,000 and your LTV would be 90%. The more payments you make, the lower your LTV (loan-to-value ratio) will be.
To rid yourself of mortgage insurance, the refinancing tactic works if your home has gained substantial value since the last time you got a mortgage. For example, if you bought your house four years ago with a 10 percent down payment, and the home’s value has risen 15 percent since then, you now owe less than 80 percent of what the home is worth. Under these circumstances, you can refinance into a new loan without having to pay for PMI.
Home Values change yearly. They can go up or down. For most markets, inventory in the past few years has been low and homeowners have seen a decent increase in value due to the demand for homes from buyers.
Ways Your Home Value Can Increase:
Home improvements can also add value to your home. Have you added a bathroom or bedroom? Have you remodeled the home in any way that might have increased the value? If so, you might want to see how much higher your value is to refinance into a new and better No PMI Mortgage.
So this one is along the same lines as a home upgrade with the exception that you’re making the home more environmentally friendly and efficient. Some simple ways of increasing energy efficiency in your home would be installing double-pane windows, enhanced attic insulation, LED lighting and efficient appliances; These items can increase your home value and entice energy-conscious buyers.
Make Your Home a Smart Home!
Smart technology is growing. With that being said, it’s worth installing smart gadgets into your home- making your home a “Smart Home”. Different kinds of smart devices include thermostats, fire detectors, carbon monoxide detectors, security cameras, door locks, and lighting. These devices enable efficiency and give homes a more modern edge on the competition.
Mortgage insurance for conventional loans (loans that are not part of government programs) is called private mortgage insurance (PMI).
PMI is required if your LTV (loan-to-value) is above 80% (meaning your down payment was less than 20%). PMI cancels automatically when you pay off enough of your loan that your LTV (loan-to-value) reaches 78%, or if you’ve reached the midpoint of your loan term.
It’s important to remember, once you’ve met your Mortgage Lender’s criteria, and you’ve reached the 80% threshold, PMI can also be canceled a little earlier but you would have to contact your current Mortgage Lender to do so.
On the other hand, mortgage insurance for FHA loans, called mortgage insurance premium (MIP), is required for all borrowers – regardless of their LTV (loan-to-value).
If your LTV (loan-to-value) was greater than 90% when you bought your home (meaning you put less than 10% down), you’ll have to pay MIP for the entire life of the loan.
If your LTV (loan-to-value) is 90% or less (meaning you put more than 10% down, or even more than 20% down), you’ll be required to pay FHA MIP for 11 years, or for the life of the loan- whichever occurs first.
At times, homeowners take an FHA loan to purchase a home due to qualifying ratios, credit scores, and guidelines. But if your credit scores improve, or maybe you’re making more money because of a pay increase, it might make sense to refinance out of an FHA loan and into a conventional option with PMI (private mortgage insurance). You may ask yourself, “Why would anyone refinance from one mortgage that has MI (Mortgage Insurance) to another mortgage has also had PMI (private mortgage insurance)?” Because with a conventional option you will not get stuck paying mortgage insurance for the life of the loan. Depending on the scenario, you might pay an even lower PMI (private mortgage insurance) payment and for a much shorter period of time, saving you thousands of dollars yearly and for the life of the loan.
So, if you are paying mortgage insurance, hopefully, you’ll be waving good-bye soon! Want to check out current mortgage options? Click here