Most borrowers who use FHA mortgages were persuaded by the low down payment option. Given that mortgage insurance is typically assessed on loans for more than 80% of the value, most FHA buyers have mortgage insurance payments each month. The process for having that fee cancelled depends on when the loan was issued by FHA. This article contains an overview of cancelling mortgage insurance from FHA mortgages issued prior to June 3, 2013.
Cancelling Mortgage Insurance Gradually
With every monthly payment that you send in, you pay down a fraction of your loan balance. In the early few years, the amount towards interest is greater than the amount for the principal, but this steadily changes. Mortgage insurance is eventually cancelled when the loan is paid down to 78% of the original value. You may also submit extra contributions towards principal to get to this point quicker.
With most mortgages, you may demand that mortgage insurance be cancelled when the balance drops to 80%. It is certainly a great idea to do this and save more money. Check your mortgage paperwork to verify that this is indeed an option.
Shift in Home Prices
Loan-to-value percentages are calculated using your loan amount and the initial price or current appraised value. If prices improve enough, your loan balance could be lower than 80%, thereby cancelling the mortgage insurance. In order to cancel mortgage insurance via this option, you must call your Lender to request an appraisal. You are responsible for the cost, but it pays for itself if your mortgage insurance is gone as a result. Also, you must have had your mortgage for at least 5 years before cancelling mortgage insurance.
Guidance on Cancelling Mortgage Insurance From FHA Mortgages
Loan terms always get modified over time. The above is purely a summary of typical FHA loan conditions. It is important to check your specific documents regarding cancelling mortgage insurance from FHA mortgages. You may also call a lending professional for further assistance.