Does Mortgage Insurance Go Away on a Conventional Mortgage?
While the rules for mortgage insurance on conventional mortgages are more clear and more favorable than the new rules on FHA mortgages \, there is still a lot of gray area. This is because each insurance company and each lender have their own specific rules, and each state can have additional rules which further complicate the matter.
But the short answer is, yes, mortgage insurance does go away on a conventional mortgage. The longer answer would have to do with when the insurance goes away. Every mortgage should have the insurance automatically removed when the loan balance reaches 78% of the original purchase price. This can take years to reach if you make your normal monthly payments.
This can also drive borrowers crazy if their house appreciates in value or if they make additional principal payments, because neither of those factors will affect this. The 78% mark is based upon the amortization table, and will be reached at the same time regardless of the housing market or additional payments.
Another way some borrowers get rid of insurance is to make extra payments to their mortgage, bringing their loan balance down below the 80% mark early. At this point you can request that a lender remove the insurance premiums, but there are no guarantees that the lender will.
The best way to eliminate mortgage insurance is to refinance your home into a new mortgage without any insurance premiums. I recently had a customer in Livonia who had been living in his house for 3 years and saw a significant increase in his home’s value during that time. He was also making extra payments to principle, and had over 30% equity in his home. He twice requested the lender remove the insurance and twice was denied, and would have to wait another 4 years for the insurance to be dropped automatically.
So he contacted me, we explored some options, and we refinanced his home into a new conventional mortgage with no mortgage insurance. Based upon the rate he was paying for the insurance, we saved him $2,976 during those 4 years. And given the low rate environment, we also lowered his rate. In the end, we kept his payments the same as they were prior to the refinance, but put him in a mortgage which took 7 years off the life of his loan.
As you can see, there are a lot of gray areas when it comes to mortgage insurance for conventional loans, but if you have any questions about your loan or your situation, please contact me and I will help you figure it all out. If you have anything to add about mortgage insurance on conventional loans, please leave a comment.