When Can Mortgage Insurance Be Cancelled?

Mortgage and Lending with The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. NMLS #241555

We are often asked when a borrower is no longer required to pay mortgage insurance.  For a conventional (non-government) loan, a borrower can request that the mortgage insurance (MI) premiums be cancelled when they have 20% equity in the property. 

If a borrower requests the cancellation, then they have to prove that they actually do have 20% equity.  That means they will need to pay for an appraisal.  They also need to have a good payment history (no 30-day lates in the past 12 months, and no 60-day lates in the past 24 months).  

The lender is required to cancel the MI once the equity gets to 22%.  They will use the amortization schedule for the loan to determine when the borrower has 22% equity.  

If the borrower has purchased a house at a below-market price and has an appraisal showing that they have 20% equity, they will still probably have to pay MI for at least a year.  That determination is up to the lender.  

FHA rules are a little different.  For an FHA loan, the MI gets cancelled once the borrower has 22% equity.  However, regardless of the equity, a borrower must pay MI for a minimum of 5 years with an FHA loan.  This is one reason it makes no sense for a borrower to get an FHA loan if they are making a large down payment (15% or more).


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Melissa Breeland
Residential Mortgage of SC - Charleston, SC

I'm actually finding more and more people choosing FHA even with a large down payment simple because qualifying is so much easier. So, if they are putting down at least 15% and their credit scores are 740 or above it makes no sense to go FHA.  

Feb 03, 2009 07:28 AM #1
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