How to Get Out of Mortgage Insurance
The biggest complaint from home buyers is mortgage insurance.
If your down payment is less than 20 percent of the home’s value, you are required to pay it.
If that is the case, and for most Americans it is, with a little planning and patience you can get rid of the mortgage insurance to reduce your house payments.
As Bankrate says in this piece, mortgage insurance exists to protect the lender in case the borrower defaults.
Private mortgage insurance, or PMI, is included in the borrower’s monthly mortgage bill.
The amount depends on the type and size of the loan, the amount of the down payment and the credit history of the borrower.
One could make the argument mortgage insurance is a ruse to get even more money from the buyer.
Do lenders really need more money?
Is that too cynical?
Many don’t realize they will eventually get rid of the mortgage insurance on their own.
They can do it sooner if they try.
That’s the key: Try, because it’s still up to the lender to decide.
If it was left up to you whether to get more money each month, which would you choose?
That leaves you with a few options to get rid of this scam.
There’s the slow way, which involves waiting for your legal rights.
If you pay your mortgage on time and according the schedule, the PMI will go away on its own.
The lender is required by law to terminate mortgage insurance when the loan is scheduled to reach 78 percent of the original value of the home. When that happens, the owner must be current on the loan.
Notice the keyword in that phrase: Scheduled.
That means paying ahead doesn’t speed up the process.
As Sara Millard, senior vice president and deputy general counsel at United Guaranty Corp, told Bankrate: “Automatic termination at the 78 percent threshold is not based on the actual payments, but is based on the date that the loan is first scheduled to reach 78 percent, according to the initial amortization schedule.”
In other words, it’s another ruse for banks.
Under the Homeowner’s Protection Act of 1998 – how does this protect homeowners? Is it not protection for banks? – this only applies to home loans on primary residences.
Some states, such as New York, have their own laws that require termination of insurance for primary and vacation homes.
Every state in the Union should follow and do the same.
This is a scheme from the people who supposedly represent us but clearly don’t.
The other way to get rid of this fraud insurance is to pay down your loan and cross your fingers.
When you reach the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original home value, you can ask your lender to remove the PMI.
There is no guarantee they will say “yes.”
In most cases, the borrower has to wait two to five years after taking out the loan to make the request.
You are most likely to get approved based on what the home was worth at the time the loan closed, and have a great payment history. That means no missed payments.
Even then, you’re at the mercy of the lender.
The last, easiest and quickest way is to refinance.
“The ultimate trump card is refinance because you are going to do a new appraisal, and if you establish you have 20 percent equity, then you don’t need mortgage insurance,” Ed Conarchy, a mortgage advisor at Cherry Creek Mortgage in Gurnee, Ill., told Bankrate.
If you’re upset (or any other adjective) about PMI, just give it some time and you will be done with it.
Of course, if you play your cards right and save enough for 20 percent down, you won’t ever have to fret.
If you can’t put that much down, and most can’t because that’s a lot of money, follow these guidelines and you won’t have to deal with mortgage insurance for long.