The taxes and insurance component of your monthly mortgage payment may include mortgage insurance, which protects investors from default if a borrower fails to pay. Mortgage insurance is a valuable tool, but borrowers frequently have concerns regarding its length, available payment plans, and early payoff possibilities.

Does Mortgage Insurance Remain for the Life of the Mortgage?

Private mortgage insurance (PMI) typically applies to conventional loans (Freddie Mac and Fannie Mae are the investors for conventional loans) and will automatically drop off once the borrower reaches 22% equity. Borrowers also have the option to ask for the PMI to be taken off of their loan at 20% if they meet certain requirements. Private mortgage insurance is written through private companies like Arch, Enact, Essent, MGIC, Nation MI, and Radian. 

FHA loans, which have Ginnie Mae as the loan’s investor, are subject to a different type of mortgage insurance called a Mortgage Insurance Premium. This is written through FHA and included in your monthly payment. Mortgage Insurance Premiums remain for the life of your loan unless you put down 10%. If a borrower puts down 10%, the monthly mortgage insurance premiums are on the loan for 11 years. FHA loans also require an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan value. This UFMIP can be paid in full at closing or financed into the loan balance.

Can You Pay Mortgage Insurance Off Early?

If you have a conventional loan and would like to get rid of your PMI (private mortgage insurance), making extra principal payments on the loan balance is one-way borrowers can build up additional equity in their home. If the property's value has improved significantly since the loan's origination, borrowers may be able to meet the equity criteria sooner by requesting a reappraisal of the property. Please check with your lender to see what is required to cancel PMI.

For many, mortgage insurance is necessary to make homeownership possible, but it's essential to understand its terms. By learning the specifics of your mortgage insurance options borrowers can make decisions that align with their long-term financial goals. The experts at Standard Mortgage (NLMS#44912) can answer your questions and help you find the right mortgage for you.