You’ve probably heard of mortgage insurance, and if you have purchased a home before, you’ve likely had to get it. However, if you are new to the home buying process, it may be a confusing concept. Which is why we are going to break down what mortgage insurance is, the different types, and how to cancel this cost.
Mortgage insurance is required when there is less than a required 20% down payment. Mortgage insurance should not be confused with homeowners or flood insurance policies. Plus, there are different mortgage insurances depending on your specific mortgage type:
- Conventional loan is called Private Mortgage Insurance (PMI)
- Federal Housing Administration (FHA) loan is called Mortgage Insurance Premium (MIP)
- USDA Rural Development guaranteed loan originated on or after October 1, 2011, does not have a monthly mortgage insurance amount, but rather has a required annual fee
Automatic Termination of PMI For a single-family, owner-occupied residence, you may be able to cancel PMI if you are current on your loan payments. PMI will automatically terminate on the date your principal balance of your loan is first scheduled to reach 78% of the original value of the property based on the original amortization schedule.
Borrower Requested Cancellation of PMI Based on Original Value You have the right to request that PMI be reviewed for cancellation on or after the date the principal balance reaches 80% of the original value of the property.
PMI will only be cancelled on this date if:
- You submit a written request for cancellation;
- You have a good payment history;
- You are current on the payments required by your loan; and
- We receive, if requested and at your expense, evidence that the value of the property has not declined below its original value. Please contact our mortgage servicing department to discuss the type of valuation required as depending on your specific loan, the requirements can vary.
Keep in mind, a “good payment history,” means no payments 60 or more days past due within two years and no payments 30 or more days past due within one year of the later of (a) the cancellation date, or (b) the date you submit a request for cancellation.
What Are The LTV Requirements to Cancel PMI Based on a New Evaluation? For a single-family, owner-occupied residence, you may be able to cancel PMI using a new valuation, typically a Broker Price Opinion (BPO) or under certain circumstances, an appraisal. This valuation must be paid for at your own cost and must be ordered through CorTrust. Regulatory guidelines do not allow the borrower to choose their own appraiser or real estate agent for the valuation. If we review the LTV using the current value of your property, you may be eligible to cancel PMI if:
- Your loan is less than two years, not eligible unless you've made significant improvements to your property, such as an addition, extensive remodel, or finishing a previously unfinished basement.
- Your loan is between two and five years, and your LTV is 75% or less, unless you've made significant improvements to your property, such as an addition, extensive remodel, or finishing a previously unfinished basement in which case the LTV ratio must be at 80% or less.
- Your loan is older than five years and the LTV is 80% or less.
- You’ve not made any 30-day late payments within the past 12 months and any 60-day late payments in the past 24 months.
You may be able to cancel MIP if your loan originated on or after January 1, 2001, and prior to June 3, 2013. FHA MIP will automatically be automatically cancelled when the LTV reaches 78% as follows:
- For loan terms longer than 15 years to be eligible for automatic cancellation, the monthly MIP must have been paid for a minimum of five years.
- Cancellation of the annual MIP is normally based on the scheduled amortization of the loan. However, in cases where the loan payments have been accelerated, borrower requested cancellation can be based on the actual amortization of the loan as provided to FHA.
- The borrower cannot have been more than 30-days delinquent on the mortgage during the previous 12 months if requesting early cancellation of MIP.
- The 78% threshold will be predicated only upon the initial sales price or appraised value, whichever was less.
Loans originated on or after June 3, 2013, are generally not eligible for MIP cancellation.
This fee will be part of the loan until it is paid off and cannot be cancelled early.
Contact CorTrust Bank Mortgage Loan Servicing to learn more about cancelling mortgage insurance at 800-643-4525. We can discuss and request an official mortgage insurance cancellation review.