Question:

What is mortgage insurance?

Answer:

Mortgage insurance is the magic wand that allows achieving homeownership with as little as 0 to 5 percent down payment. Although many homebuyers will not be happy with it, it is the single instrument that will help you get your home with little or none down payment. Yes, it is true - sometimes a piggyback loan 80/15/5 or 80/20 will do the job, as well. But the time of inexpensive second mortgage rates is gone and now it won't be necessarily the better option than a PMI (private mortgage insurance).

Mortgage Life Insurance and PMI

Those two are often mistaken.

  • Mortgage life insurance is rather a life insurance policy of the main contributor to the household income for the lifetime of the loan.
  • Private mortgage insurance (PMI), in contrast, protects the lender in case of buyer's default.

They are just totally different insurance products and have nothing in common. They are both necessary in case you are buying a home with less than 20 percent down payment.

How to avoid or cancel private mortgage insurance?

In order to avoid PMI, you need to achieve the 80% LTV. Even you have bought a PMI, and you are still far from the 20 percent equity on the home, if you run a house appraisal, it may turn out your house has appreciated enough and you no longer need to make PMI payments.

Another way to cancel mortgage insurance is to make additional home improvements that again will raise the value of your home, will get you the 80% LTV level and will allow you to drop paying it.

Also, not only you have the right to request PMI cancellation when you reach 20% of equity, but lenders are required to stop charging you for private mortgage insurance automatically when 22% equity is reached. In case you have had late payments they may not act towards cancelling the PMI and you should watch out on your equity as you will have to negotiate it with lender.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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