Most people are trying to find ways to save money these days. One expense you may not have thought about is your mortgage insurance. If you purchased a home and put less than 20% down, chances are you may have a mortgage insurance premium wrapped up in your mortgage payment. Some of you may wonder if you need mortgage insurance? You do not! Mortgage insurance does not protect you, it protects your lender. When you put less than 20% down, most lenders require you to pay for mortgage insurance to protect them in case of default.
Mortgage insurance may go away on its own once you have at least 20% equity, based on an amortization schedule you would have received at closing. Depending on your interest rate and how much you initially put down, it could take years before the mortgage insurance is taken off automatically. However, many areas around the country have seen radical appreciation in real estate values over the last few years. This means that you may have sufficient equity to have your mortgage insurance removed. Your note, lender, or loan servicer should be able to tell you what the specific procedure is to have the mortgage insurance removed from your loan.
The first thing to do is get an idea of what the market value of your home is now. You can look at some of the automated values available on the internet, but contacting your Realtor® for a comparative market analysis (CMA) will be a lot more accurate. Next, look at your mortgage statement to find out what you still owe on your property. If you take the amount you still owe on your home and divide that by 0.8, that will give you the value your home must exceed to have the mortgage insurance removed. (example: loan principal = $80,000 / 0.8 = $100,000 required home value to remove mortgage insurance) Usually, your lender will require an actual appraisal be performed to remove the mortgage insurance. You will have to pay for that appraisal, so you want to be confident of the value estimate, before you spend several hundred dollars on that appraisal.
Unfortunately, if you have an FHA loan the rules are different regarding the mortgage insurance premium. Check with your lender to see what your options are. VA loans do not have mortgage insurance, so this is not anything our veterans need to deal with. If you live in the Orlando area, and do not have a Realtor® to help you, please feel free to contact me at SellMyHome@DavidWelch.com for a complimentary CMA.
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