Mortgage Insurance

Mortgage insurance may be required on your loan as a form of protection for your lender, covering them against losses if you default on your mortgage. When a borrower defaults and the lender takes title on the property, mortgage insurance helps reduce their costs. This type of insurance is typically required on conventional loans with down payments under 20%.

There are actually two main types of mortgage insurance, depending on the type of loan you get. If you get a conventional mortgage with a down payment of 19% or less, you will likely need to pay private mortgage insurance (PMI). FHA loans have a unique type of insurance that comes in the form of a one-time upfront premium and an annual premium, which are both required on all FHA mortgages.

As the borrower, you can expect a monthly cost of $50 to $200 per month when you are required to carry mortgage insurance.

How to Get Rid Mortgage Insurance

If you must pay private mortgage insurance, it is fairly easy to get rid of it if you reach 20% equity. You will need to reach 20% equity in your property through home appreciation (which requires an appraisal that you must pay for) or paying down your loan. lenders are required to cancel PMI when your balance reaches 78% loan to value.

FHA mortgage insurance premiums, however, are for the life of your loan. In the past, you could get these premiums dropped off after 5 years or hitting a certain loan to value ratio, but the only way to get rid of it now is refinancing into another type of loan.