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Last Updated on 05/25/2022 by Mark Verhoeven

How long do you have to pay mortgage insurance?

How long do you have to pay mortgage insurance?
How long do you have to pay mortgage insurance – Mortgage Rates Today

Private mortgage insurance, or PMI, is a type of insurance that lenders require for certain types of mortgages, such as conventional loans. When the down payment is less than 20% of a home’s purchase price, conventional mortgages backed by Fannie Mae or Freddie Mac require private mortgage insurance (PMI). FHA and USDA loans also require private mortgage insurance as well.

When a typical mortgage hits a loan–to–value ratio of 78 percent, mortgage insurance (PMI) is no longer required. The removal of FHA mortgage insurance, on the other hand, is a different situation. FHA mortgage insurance premium (MIP) normally lasts 11 years or the life of the loan, depending on your down payment and when you first took out the loan. MIP will not disappear on its own. Once you’ve built up enough equity, you’ll need to refinance into a conventional loan to get rid of it.

Many lenders will require the PMI to last at least two years, regardless of the loan to value but every lender is different.  So, if there has been a significant increase in property values in the last year, it is likely you will have to wait at least two years before applying for the removal of PMI. In some cases where the borrower had significantly accelerated payments or there was a large amount of home improvements, the two year wait period can be avoided but don’t count on it.  So, always check with your lender before closing on your loan if you are planning on removing your PMI earlier than two years.

What Is Mortgage Insurance?

Mortgage
insurance is a type of insurance that protects a mortgage lender or
titleholder in the event that the borrower fails on payments, dies, or
is otherwise unable to meet the mortgage’s contractual obligations.
Private mortgage insurance (PMI), qualifying mortgage insurance premium
(MIP) insurance, and mortgage title insurance are all examples of
mortgage insurance. The obligation to pay the lender or property owner
whole in the event of specified losses is universal to all of them.

Mortgage
life insurance, on the other hand, is designed to protect heirs if a
borrower dies while still owing on their mortgage. Depending on the
conditions of the insurance, it may pay the lender or the heirs.

Mortgage Insurance Definition

Mortgage
insurance, also known as mortgage guarantee or home-loan insurance, is a
type of insurance that reimburses lenders or investors in
mortgage-backed securities for losses resulting from a loan default.
Depending on the insurer, mortgage insurance might be public or private.

What is Private Mortgage Insurance? (PMI)

A
borrower may be forced to purchase private mortgage insurance (PMI) as a
condition of obtaining a traditional mortgage loan. PMI, like other
types of mortgage insurance, is designed to protect the lender rather
than the borrower. PMI is arranged by the lender and delivered by
private insurance firms.

If
a borrower takes out a traditional loan with a down payment of less
than 20%, PMI is normally required. If a borrower is refinancing with a
traditional loan and has less than 20% equity in their property, the
lender may mandate PMI.

Private Mortgage Insurance in the United States

When
the down payment or equity position is less than 20% of the property
value, most conventional mortgage programmes demand private mortgage
insurance, or PMI. In other words, if the loan-to-value (LTV) is larger
than 80% (or equivalently, the equity position is less than 20%) when
purchasing or refinancing a home with a traditional mortgage, the
borrower will almost certainly be forced to carry private mortgage
insurance.

What is an Insurance Mortgage Policy?

An
insurance policy, like any other type of insurance, is part of the
insurance transaction. A master policy provided to a bank or other
mortgage-holding business (the policyholder) lays out the terms and
conditions of coverage under insurance certificates in mortgage
insurance. Each loan’s unique qualities and terms are documented in the
certificates. Exclusions, criteria for notice of loans in default, and
claim settlement are all included in the master policy.

How long do you pay mortgage insurance on a conventional loan?

This depends on several factors such as the down payment given at closing, the appreciation in your market, and how long you have had your mortgage.  But, according to the Homeowners Protection Act, lenders must give homeowners annual reminders reminding them that they have the ability to terminate their PMI. When the principal balance of your mortgage falls to 80% of the original value of your house, as a homeowner, you can request that the mortgage insurance be eliminated. Even if you don’t ask for it, lenders are required to cancel PMI on conventional loans once the outstanding balance reaches 78% of the home’s original value.

If you look at your Amortization Schedule, you should be able to find these dates. More specifically, you should have a PMI disclosure form that you signed when you closed on your home loan. If you match the following criteria, you can request that your PMI be dropped before these dates:

  • You must make all of your monthly payments on time.
  • You must submit your request in writing.
  • You may be asked to attest that your home is free of any second mortgages.
  • It’s possible that an appraisal will be required to prove the value of your home.

In most cases, if you achieve these criteria, your lender will cancel your PMI.
It’s worth noting that certain lenders have a minimum credit score requirement so always maintain a great credit history.

How long do you have to pay mortgage insurance on an fha loan?

FHA loans provide lower down payments and easier credit requirements than conventional loans, with down payments as low as 3.5%. Regardless of the down payment level, most FHA home loans require an upfront and annual mortgage insurance cost. The upfront charge is 1.75% of the loan amount, and the annual premium is either .85% or .80%, depending on the down payment.

If you put down less than 10%, the annual mortgage insurance payment, or MIP, is paid in monthly installments for the duration of the FHA loan. If you put down more than 10%, you’ll have to pay MIP for 11 years.

How long to pay off mortgage insurance?

Mortgage insurance is paid by the borrower and it protects the lender for the additional risk incurred by the lender as a result of the borrower not putting down 20%. Although this fee protects the lender in case of default by the borrower, it does afford home ownership to more people due to lower down payment requirements. The length of time required to pay off mortgage insurance will depend on many factors, such as loan type, down payment, home appreciation, etc. 

Mortgage life insurance, which pays off the remaining mortgage if the borrower dies, and mortgage disability insurance, which pays off the mortgage if the borrower becomes handicapped, are two separate types of insurance.

When can I stop having mortgage insurance?

Unfortunately, if you bought or refinanced a home with an FHA loan on or after June 3, 2013, and put down less than 10%, MIP will apply for the life of the loan. Even if you put down 10% or more, you’ll have to pay MIP for another 11 years.

If you haven’t bought or refinanced a home with an FHA loan since June 3, 2013, you may be eligible. When your LTV hits 78 percent over a 15-year period, MIP is eliminated. The LTV requirement stays the same for lengthier terms, and you must pay MIP for at least 5 years.

If you have an FHA loan, there is another method to eliminate paying these payments. Once you reach 20% equity in your property and complete the other requirements (e.g., a 620 median FICO® score), you can refinance into a conventional loan and seek the elimination of mortgage insurance.

With a Conventional loan, when your mortgage balance reaches 78 percent of the original purchase price — in other words, when your loan-to-value (LTV) ratio drops to 78 percent — your lender or servicer must immediately cancel PMI. If you’re in good standing and haven’t missed any mortgage payments, you can do so.

Benefits To Paying PMI As A Borrower

Although PMI is designed to safeguard the lender rather than the borrower, there are some indirect benefits for the borrower. We’ll go through two of the most important ones here:

  • PMI allows for a smaller down payment. PMI allows for down payments as little as 3% because it mitigates some of the risks for lenders in the event of a borrower default. Without PMI, a traditional loan would require a minimum of a 20% down payment. PMI enables you to become a homeowner more quickly.
  • PMI is a tax-deductible expense. The mortgage insurance tax deduction has been extended by Congress until the 2021 tax year, so if you haven’t paid your taxes yet, this is still deductible. You submit it along with the deductible mortgage interest you should have received from your mortgage servicer on Form 1098.  However, always consult with an accountant when filing your taxes. 

Depending on your financial condition and other priorities, even if you have the funds for a 20% down payment, it may make sense to make a smaller down payment and opt for PMI. Talk with your loan officer to determine the best option for you.

Cancellation Law

Jim Hensen, a Utah congressman who had his own troubles eliminating PMI on his condo, helped lead the charge to the passage of the Homeowner Protection Act (HPA).

HPA, enacted in 1998 and taking effect in July 1999, requires qualifying borrowers to be notified each year that their policy may be canceled. It also explains when a PMI policy can be automatically canceled, which is usually when the initial loan total is paid down to 78 percent of the home’s original value, according to the original payment plan. This sunset provision, however, only applies to loans made after July 29, 1999. Earlier loans were not automatically canceled.

This, of course, does not apply to defaulting debtors. You may have to wait if you have a poor payment history, particularly in the most recent year or two. According to the legislation, the borrower cannot have any payments that are more than 30 days past due in the 12 months leading up to the automatic cancellation. Furthermore, the borrower cannot have had any payments that were 60 or more days past due in the 24 months prior to the auto-cancel.

If the borrower has a history of late payments, they will have to wait until they have built up a string of “late-free” months, or until the loan is paid down to a 77% LTV level.
However, there has always been an informal borrower-lender relationship when it comes to PMI cancellation, as long as you were aware that you had PMI and that it may be terminated at any time. If you didn’t, you’d have to pay PMI until you refinanced or paid off the loan. However, HPA now mandates that your lender notify you at least once a year that your PMI may be canceled if certain requirements are met. This rule only applies to single-family primary houses.

How To Avoid PMI Insurance

In addition to canceling PMI, it’s also possible to completely avoid paying mortgage insurance from the start of your loan.

How To Avoid PMI Insurance:

Make A 20% Down Payment

The easiest way to skip PMI from the start is to make a large down payment. By making a 20% down payment on a conventional loan, your LTV will automatically be 80%, allowing you to pay your loan without mortgage insurance.

Get A VA Loan

Among all of the loan types available, VA loans are the only type that don’t require mortgage insurance regardless of your down payment. Instead, borrowers are required to pay an upfront funding fee. This fee helps to offset the cost of administering the loan. This helps to ensure that VA loans continue to require no down payment and no monthly mortgage insurance.

The VA financing fee is waived for a select group of clients:

  • Anyone who is presently receiving disability compensation from the VA
  • Anyone who is presently receiving disability compensation from the VA
  • Active-duty 
  • Purple Heart recipients

Another way to eliminate monthly PMI on a Conventional loan is to ask your loan officer about a lender paid mortgage insurance loan.  This involves increasing the rate so that the monthly premium is not required. An experienced loan officer can show you the break even for increasing the rate and help determine if this is the best option.

Do I have to pay mortgage insurance forever?

You don’t have to pay private mortgage insurance, or PMI, for the rest of your life. In addition, once your regular payments lower the balance on your loan to 78 percent of its original appraised value, your lender must immediately terminate PMI charges.

Can I cancel PMI after 1 year?

You may need to be on the loan for a minimum of 12 months to get your private mortgage insurance cancelled. However, some lenders will require at least two years. When you have 22 percent equity in your property and have been on the loan for one year, some lenders will automatically remove the PMI.

Mortgage Insurance Conclusion

Private mortgage insurance is required in some form on all conventional loans when putting down less than 20%.  However, PMI has allowed significantly more people to become homeowners due to a lower down payment . If your loan requires PMI, always determine what the requirements are to have it eliminated when you reach 20% in equity.


Contact the mortgage professionals at Mortgage Rates Today for more information on how we can help you.

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