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Mortgage insurance

Are you ready to cancel mortgage insurance? Here’s how…

By Robin Wetherbee

September 2015

If you’ve kept up with your mortgage payments and built up enough equity, you have a couple options: You can request to cancel mortgage insurance based on your home’s value or just wait for your lender to automatically cancel mortgage insurance.

(Just to be clear, we’re talking about private mortgage insurance. If you have government mortgage insurance through FHA, you cannot cancel it unless your loan has an LTV of 90% and you’ve had it for at least 11 years.)

Once you cancel mortgage insurance, that’s one less monthly expense, and your disposable income gets a nice little bump.

Cancel mortgage insurance based on your home’s original value

According to the Homeowners Protection Act of 1998 (HPA), you can ask your lender to cancel mortgage insurance when your mortgage balance reaches 80% of your home’s original value, either because:

  • You’ve made all of your scheduled payments or
  • You’ve made extra payments to reduce the principal balance ahead of schedule

In addition to your good payment history:

  • Your request must be in writing
  • Your property value must be at least the same as its original value and
  • There are no subordinate liens on your property

If you meet these requirements, your lender must cancel the mortgage insurance on your loan.

Note: For a purchase transaction, original property value is the lesser of the property sales price and appraised value. For a refinance transaction, original value is the appraised value.


Cancel mortgage insurance based on your home’s current value

You can also ask your lender to cancel mortgage insurance based on your equity due to your home’s value appreciating. (This scenario is not covered under the HPA, and lender/investor requirements may vary.)

In addition to your good payment history:

  • Your request must be in writing
  • If your mortgage is at least 2 years old but less than 5, you generally need at least 25% equity in your home
  • If your mortgage is more than 5 years old, you typically need at least 20% equity
  • Your lender will typically require an appraisal to verify your home’s value

Your lender may have additional requirements.


Automatic cancellation

In general, under the HPA, your lender must cancel mortgage insurance on your loan when:

  • You reach 22% equity in your home, based on the original property value and
  • Your mortgage payments are current

With this option, all you need to do is sit back and relax.


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Frankie coss •

What is mortgage insurance I want to cacel

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Robin

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Robin Wetherbee has been writing for MGIC about mortgage insurance and homeownership since 1989. She and her handsome husband reside in Milwaukee’s Bay View neighborhood. They share their freshly empty nest, which she calls her “Miracle on 34th Street” house (if you’ve seen the 1947 movie, you’ll know exactly what she means) with their big old black cat, Max Rayfield Gilhooly.
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