Mortgage insurance can add extra costs to your monthly mortgage payment, but the good news is that it’s possible to avoid or remove it in the right circumstances. Whether you’re a first-time homebuyer or looking to refinance, understanding your options can save you money.
What is Mortgage Insurance?
Mortgage insurance protects the lender in case a borrower defaults on their loan. It is required on many loans where the borrower makes a smaller down payment. There are three main types:
Private Mortgage Insurance (PMI): Required on conventional loans with a smaller down payment. Mortgage Insurance Premium (MIP): Required on FHA loans regardless of down payment size. VA and USDA Mortgage Insurance Premiums: VA loans have a one-time funding fee, while USDA loans have an upfront guarantee fee and an annual fee, both serving a similar function to mortgage insurance. How to Avoid Mortgage Insurance
If you’re planning to buy a home and want to avoid mortgage insurance, consider these strategies:
Make a Larger Down Payment – On conventional loans, a large enough down payment means PMI isn’t required at all. Choose a VA or USDA Loan – These government-backed loans do not require mortgage insurance, though they have funding or guarantee fees. Look into Lender-Paid Mortgage Insurance (LPMI) – Some lenders offer higher interest rate options where they cover the PMI cost upfront. Consider a Piggyback Loan – This pairs a first mortgage with a smaller second loan and a down payment, keeping the first mortgage below the level where PMI is required.
How to Remove Mortgage Insurance
Already have mortgage insurance? Here’s how you may be able to remove it and lower your monthly payment:
Automatic PMI Cancellation – Under federal law, lenders must automatically cancel PMI once your loan balance falls to a set level relative to your home’s original value, based on your original payment schedule. Request PMI Removal Early – You can ask to remove PMI sooner once you’ve built enough equity through payments or, in some cases, home appreciation. Your loan servicer can tell you exactly where that line is for your loan. Refinance into a New Loan – If your home has appreciated, refinancing into a new loan once you have enough equity can eliminate PMI or MIP. FHA Loan? Switch to Conventional – If you have an FHA loan, refinancing into a conventional loan once you have enough equity is often the only way to remove MIP.
Final Thoughts
Mortgage insurance isn’t permanent, and with the right strategy, you can avoid or eliminate it, saving money over time. If you’re considering buying or refinancing, talk to a loan officer to explore your best options.
Thinking about refinancing or buying? Contact us today to discuss how to reduce or remove your mortgage insurance!
Please note: These materials are not from HUD or FHA and were not approved by HUD or a government agency and in some cases a refinance loan might result in higher finance charges over the life of the loan. *