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Do you qualify to eliminate mortgage insurance?

You probably never wanted to pay mortgage insurance (who does?), but when you had dreams of buying a home, that added cost made it possible at the time. If you’ve been making your on-time mortgage payments for a while, though, you may be wondering when you can stop paying mortgage insurance — or at least reduce your payments.

Has your home increased quite a bit in value since you got your original Conventional loan? The value might be high enough to allow you to have a new appraisal completed and then contact your lender to eliminate private mortgage insurance (PMI). Have your financial circumstances improved since you were approved for your FHA loan? You may be able to refinance into another loan product, like a Conventional loan, that doesn’t come with lifetime mortgage insurance premium (MIP).

The bottom line? You have options. But first, it’s important to understand the differences between types of mortgage insurance and how they affect you. Whether you have PMI or MIP depends on what kind of mortgage you have. Read below to learn the differences between these two types of mortgage insurance.

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PMI
(Private Mortgage Insurance)

If you have a Conventional loan, and your down payment was less than 20% of the purchase price, you have PMI. Once you reach 80% loan-to-value (LTV), you can call your lender and ask them to eliminate your PMI. If you reach 78% LTV, your lender is legally required to cancel PMI on your behalf — as long as you’re current on all your payments.

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MIP
(Mortgage Insurance Premium)

If you have an FHA loan, you have MIP. FHA loans allow for more flexible credit qualifications compared to Conventional loans, so even if you make a 20% down payment, you will still be required to pay MIP. There’s an upfront MIP, which currently equates to 1.75% of the base loan amount, and that’s due at closing. Then there’s an annual MIP that’s charged monthly.

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Frequently asked questions

Am I eligible for MIP cancellation?

If you applied for your original FHA home loan prior to June 3, 2013, you may be able to perform and MIP cancellation (also known as MIP Elimination). To understand how much you pay in mortgage insurance on top of your principle and interest, check your monthly mortgage statement or give an Embrace expert a call for a no-obligation mortgage evaluation.
If you’re currently required to carry mortgage insurance, there is light at the end of the tunnel: you don’t have to keep it for the entire length of the loan. You can pay your loan down faster by paying more than the required minimum each month, which will help you build equity in your home faster. Then, once you have at least 20% equity in your home, you can request to eliminate the mortgage insurance premium all together. You can also refinance with Embrace, and if your new loan-to-value (LTV) is below the required threshold, you may not have to pay mortgage insurance on your new loan at all.
Simply put, mortgage insurance is a policy taken out on your loan that protects the lender in the event of default or foreclosure. Of course no one expects to default on their mortgage, but life isn’t always predictable and lenders need assurance that they will get their money back in the event your financial health takes a turn for the worst.

In this scenario, the lender is the beneficiary if you default on the mortgage loan for any reason.
A typical monthly mortgage payment includes the principal, interest, homeowners insurance, property taxes, and private mortgage insurance (PMI) if you put down less than 20%. You can pay more on your mortgage each month, but make sure you specify that you want the extra money to go toward the principal only (vs. prepaying interest).
Loan-to-value (LTV) tells you how much equity you have in your home relative to how much you owe on it and what the house is worth. LTV is important to know when refinancing because it can affect your interest rate and whether or not you’ll need Private Mortgage Insurance (PMI).
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30-Year Fixed-Rate Refinance Mortgage Example:
The payment on a $225,000 30-year fixed-rate cash out refinance loan at 3.250% with a 70% loan-to-value (LTV) is $979.21 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.520%. This assumes a FICO score of at least 690. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.

30-Year Fixed-Rate Purchase Mortgage Example:
The payment on a $225,000 30-year fixed-rate purchase loan at 3.125% with a 70% loan-to-value (LTV) is $963.84 with 2 points due at closing. The Annual Percentage Rate (APR) is 3.390%. This assumes a FICO score of at least 710. Payment does not include taxes and insurance premiums, which will result in a higher monthly payment. Interest rates and annual percentage rates (APRs) are based on current market rates and are subject to change without notice. Rates offered may be subject to pricing add-ons related to property type, loan amount, LTV, credit score, and other variables. Mortgage insurance may be required for LTV >80%. If mortgage insurance is required, the mortgage insurance may increase the APR and the monthly payment. Stated rate may change or not be available at the time of loan commitment or lock-in.