What is Mortgage Insurance?


What is Mortgage Insurance?

 

Do I need it? This is the question that many people have when looking at different refinance options. There are a few different factors that will determine if you will need to have Mortgage Insurance on your home loan.

The Facts

Mortgage Insurance is not an insurance policy that covers you in any way. It is designed to reimburse the lender if you default on the mortgage loan. Certain types of loans will have Mortgage Insurance on them for life. There are ways to remove this additional monthly payment. In most cases, it is a matter of time. Once the mortgage loan has amortized to a specific point, it will drop off. Mortgage insurance is also determined by the amount of equity that you have established in the property. This is called your Loan-to-Value ratio (LTV). The guidelines require at least 20% equity position in the property to allow the Mortgage Insurance to drop off. That is why some people will put 20% down on a home purchase to avoid this Mortgage Insurance premium each month.

 

Loan Types

There are different types of mortgage loan options to choose from. Some will carry Mortgage Insurance for life; others will allow it to drop off once enough equity has been established. Sometimes a loan with required mortgage insurance will offer a lower interest rate. This is because it offsets the cost of the Mortgage Insurance; it is often a less risky mortgage loan if the Mortgage Insurance is on the loan. However, nobody wants to pay Mortgage Insurance if they do not have to.

 

Can I Pay for it Upfront?

Usually yes, you can. This will depend on the lender or bank that you are working with. There are many ways to structure Mortgage Insurance to whereas alleviating the monthly payment for you.

 

How Can I Remove It?

Sometimes, refinancing out of the current mortgage that you have and into a Conventional mortgage can remove Mortgage Insurance if you feel that you have more equity in the property. This of course would be determined upon the appraisal value. If you already have a Conventional Loan, requesting that the Mortgage Insurance be removed is another way of removing it. It never hurts to ask if you can have it removed. This will depend on how long you have had it and the amount of equity you have in the home.

 

 

If your loan currently has mortgage Insurance and you think it should be removed; contact your current bank or lender. You never know what options they might have available for you.