When do mortgage insurance payments go away on Conventional Home Loans? Many believe Conventional mortgage insurance payments end when they reach the 20% equity mark. While true in some cases, it is not the norm. In fact, there are two methods to eliminate mortgage insurance payments (without having to refinance):
- Through your mortgage servicer OR
- By the HomeOwners Protection Act (HPA)
How to Eliminate Mortgage Insurance Payments
There are 2 different ways to get rid of that pesky mortgage insurance payment you love so much.
- Equity Based Mortgage Insurance Removal
Under this option, mortgage lenders remove mortgage insurance payments once a home has 20% equity based on it’s current market value (homeowners must request). This type of mortgage insurance cancellation is up to the lender’s discretion.
- HPA Mandated Mortgage Insurance Removal
The Homeowner’s Protection Act requires mortgage lenders cancel a home-owners mortgage insurance payments under 1 of 3 criteria:
- Borrower Initiated: Mortgage Insurance payments are removed when the balance of a home loan equals 80% of it’s “original value” (homeowner must request)
- Automatic: Mortgage Insurance payments are removed when the balance of a home loan equals 78% of it’s “original value” (no homeowner request required)
- Significant Home Improvements Made: Current market value may be used to determine sufficient equity to cancel monthly mortgage insurance when homeowners document significant home improvements were made to the subject property.
Using Market Value vs. Original Value
Lenders usage of a home’s “original value” (purchase price or appraised value – whichever was lower at the time of property acquisition) makes all the difference. Many homeowners believe mortgage insurance payments go away based on market value. While sometimes true, mortgage lenders do not have to cancel your mortgage insurance payments based on market value (except for under option 3 above).
Instead, lenders may use Original Value (purchase price or appraised value – whichever was lower at the time of property acquisition) to cancel a homeowners mortgage insurance payments.
Think of the Law as backstop. In many cases, mortgage lenders may cancel mortgage insurance using market value. However, mortgage lender do NOT have to do this. So sayeth the law!
By Jeremy House