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For some reason, mortgage insurance has taken a bum rap from some. It’s a nuisance, an unnecessary expense that borrowers pay, but the lender benefits. Or so they say.

Mortgage insurance has been around in some form for decades. It’s is an insurance policy that benefits the lender and usually paid by the borrower.

Mortgage insurance is required on conventional loans when the first mortgage exceeds 80% of the value of the home. Should the loan ever go into default, the lender is compensated for the difference between the 20% threshold and a 5% down payment. There are variances, but that’s the general application.

…And unless the loan is an FHA purchase loan taken out after June 3, 2013, mortgage insurance may be cancelled under certain conditions.

There are two ways to remove mortgage insurance.

One: Allow the loan to amortize

The first way is to simply allow the loan to naturally amortize to about 80% of the original value of the home.

If you have mortgage insurance, look carefully at your loan documents. It should tell you when the mortgage ends—specifically, it will terminate when the amortization schedule shows the loan balance reaches 78% of the original sales price. This is automatic; it is done without a request from you, If you have a  30-year mortgage, that can take an awfully long time.

Two: Make a Direct Request

The other way is to make a direct request to the lender. The loan balance may be paid down directly by the borrower, the property appreciates, or a combination of either.

If you have mortgage insurance and feel you no longer need it on your conventional loan, write to your lender and show that your loan is in good standing. The lender may order an appraisal to validate the current value of the property, and might also determine whether or not there is a second mortgage on the property.

Mortgage insurance helps those obtain financing with less money required at the closing table. Over time, however, it is simply no longer needed.

If you think your mortgage insurance premium is due to terminate, call your lender or contact me directly for a review.

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