While mortgage insurance allows thousands of borrowers the ability to own their own home, most buyers cannot wait to see the day that their monthly MI premium is discontinued. Once the monthly payments begin, no borrower is appreciative of how the mortgage insurance initially helped them.
The Facts According to the data,
• Only 3% of borrowers with mortgage insurance are successful in dropping the premium after two years.
• Over 85% of requests to drop mortgage insurance are declined.
• It takes 141 payments for a 30 year loan to be paid down from 95% to 80%.
• A substantial percentage of borrowers refinance of sell within 3 to 5 years
• Most clients do not realize that they can apply to drop the insurance after they have been paying for the premium for several years
Time to Do The Math
Review your monthly statement to determine your current balance. Understand that your servicing lender has no interest in removing the mortgage insurance. Therefore, the burden is on you to prove that you now own at least 20% of your home. Take your existing balance and divide it by .80 (80%). This number is the minimum value that you must prove to the lender. For example, if your balance is $120,000, then the value of the home must be at least $150,000. Look to your tax assessed value for guidance. If you feel that a strong case can be made for an 80% equity position, call your servicing lender and discuss with the loan servicing department how you would apply to discontinue the coverage.
Next Step is to Contact your Lender
Find out your lenders procedure for determine how the mortgage insurance can be cancelled. Many lenders have a minimum period that the mortgage insurance must be in place. You need to determine what means the lender will use for the evaluation. Will an appraisal be required and how much will it cost you?
It might also be an opportune time to consider if you might need to refinance. How does your current rate compare to the market rate. If it is advantageous to refinance, the need to go through the process maybe unnecessary.