Hi. It’s Kirk Brewer, the Loan Geek here with another Loan Geek Mortgage Tip of the Week.
This week I would like to talk to you guys about MORTGAGE INSURANCE. There’s a lot of myths out there in the marketplace regarding mortgage insurance and it’s my hope that with this week’s tip, we will break those myths and teach you what mortgage insurance is, when it is required and if you currently have it on your loan, how you can make it go away.
So without further ado, let’s hop right into it. What is mortgage insurance? As the name implies, it is insurance on your mortgage. However, it is not insurance for you. It is actually insuring the mortgage lender. It’s insuring them that should you stop making the payments on your loan and default on your loan, it will protect them against loss.
While it may not protect them entirely for all their losses, it will insure them over a great amount of the potential losses that they could incur.
So when is mortgage insurance required? Well, mortgage insurance is required when you put less than 20 percent down. This is because the less you put down, the more the lender is loaning relative to the overall home value, and thus the greater the risk of loss to the mortgage lender should you stop making your payments and default on the loan.
So how much will mortgage insurance cost you depends on how much you put down. If you’re a first-time home buyer and you qualify to put as little as 3.0% down, you would be in the highest tier of mortgage insurance.
If you put between 5% to 10% down, you would be in the next highest tier of mortgage insurance which would be slightly lower in cost. If you put between 10% to 15% down you would be in the next lowest tier of mortgage insurance. And finally, if you put between 15% to 20% down, you would be in the lowest tier of mortgage insurance. Then of course if you put 20% or more down, you wouldn’t have mortgage insurance on your loan.
The most common form of mortgage insurance is what’s called borrower paid monthly insurance and that is where the mortgage insurance is included as part of your normal monthly mortgage payment.
So if you have mortgage insurance on your loan or you’re thinking of going and buying a home and you have less than 20% down payment to make and are concerned about how you can make mortgage insurance go away at some point in the future, there are two ways you can make mortgage insurance go away.
The first method would be to refinance the home. So if you believe at some point in the future that you have 20% or more equity in your home, then you could refinance the home and make your mortgage insurance go away. And if rates are lower at the time you’re looking at refinancing versus when you had purchased your home and the rate you have on your current mortgage, then that would be the best way to do so that way you could take advantage of the lower rates and bring your payment down from both reducing your interest rate and eliminating the mortgage insurance.
However, what if you have a really good rate on your current loan and current mortgage rates are higher than what you currently have, but you would still like to make mortgage insurance go away?
Well, with most mortgage servicers, you can request that they remove the mortgage insurance under certain circumstances. While each mortgage servicer is different, typically what they require is (1) that you’ve been in a loan for at least 2 years. But that’s not always the case but that’s fairly typical, that you’ve been in a loan for at least 2 years. (2) that you’ve never missed a mortgage payment in those 2 years. That you’ve always made your payment on time or early, And (2) the loan servicer is going to want you to pay the cost of an appraisal, to have the property appraised, to validate that indeed there is 20% or more equity in your home.
So those are the two ways you can make mortgage insurance go away. Either refinance or request to be eliminated if you believe you have 20% or more equity in your current home.
So there you have it. Hopefully we busted some myths for you regarding mortgage insurance. If you have any more questions regarding mortgage insurance or any other mortgage-related topic, please feel free to reach out to us directly. We are the Loan Geeks. We are your full service, low-rate mortgage experts. You can find us online at www.LoanGeeks.com.
You can also find us on YouTube, on our YouTube channel which is TheLoanGeeks (all one word); on Instagram, @loangeek; and on Facebook, @loangeeks.
So there you have it. Thank you for tuning in to this week’s Mortgage Tip of the Week and we will talk to you guys soon. Take care.
Kirk Brewer
Branch Manager | Loan Geek | NMLS #150287