With the exception of a VA Loan, which doesn’t require mortgage insurance, you’ll typically have to pay mortgage insurance when putting down less than 20-percent. Mortgage insurance is intended to protect a mortgage lender against a loan defaulting or entering foreclosure. The monthly cost will depend on your lender, loan type, credit score, and down payment.
According to the federal Homeowners Protection Act (HPA), there are generally two ways to remove Private Mortgage Insurance (PMI) from your mortgage:
- Request cancellation. You have the right to request that your loan service cancel PMI once you reach the date when the principal of your mortgage is scheduled to fall to 80-percent of the original value of your house. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can’t find the disclosure form, contact your servicer.
- Wait for automatic cancellation. Even if you don’t request cancellation, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78-percent of your home’s original value. For your PMI to be cancelled on this date, you must be current on your payments. Otherwise, PMI won’t be terminated until shortly after payments are brought up to date.
The PMI example above only applies to Conventional Loans. The MIP (Mortgage Insurance Premium) on an FHA Loan must be paid for the life of a loan if you put down less than 10-percent; some homeowners choose to refinance to remove this premium.