The downside, however, is the required mortgage insurance premiums (MIP). However, you can cancel FHA mortgage insurance premiums in some cases; or lower them, at the very least.
FHA mortgage insurance is designed to protect the lender in case you stop making your monthly payments. For loans originated in 2015, this is .85% of the principal of the home. MIP is tacked onto your monthly payments and can add an extra couple hundred dollars to your monthly payment.
Understandably, most people who are paying MIP on their mortgages want to know how to cancel FHA mortgage insurance premiums. There are several ways you can do this:
Wait for it to automatically cancel.
If you purchased your home prior to June 3, 2013, MIP automatically cancels once your home reaches a loan-to-value (LTV) ratio of 78% and you’ve made at least 60 months’ worth of mortgage payments. The LTV is the percentage of your home that is mortgaged and is calculated by dividing the loan amount by the appraised value. On average, it takes a 30-year loan about 11 years to reach a LTV of 78%.
Your lender is also required to end MIP if you reach the middle of your loan’s amortization schedule before the LTV is 78%. With a 30-year loan, this is at the 15-year mark.
Pay down the principal.
If you want to speed things along, you can make extra monthly payments towards the principal of your home. This doesn’t have to be a lot—an extra $100 a month will help you reach the 78% point an entire year sooner than if you hadn’t made any extra payments.
Another option to cancel your MIP is to refinance with NLC Loans into a conventional loan. Because MIP became permanent for FHA loans originated after June 3, 2013, this may be the only way to cancel your MIP. With a conventional loan, you may still have to pay MIP, but it’s cancellable after just two years.
If you cannot refinance into another loan type, you may with to consider refinancing to another FHA loan. In January of 2015, President Obama announced deep cuts to FHA mortgage insurance premium rates. Refinancing to another FHA loan could, at the very least, dramatically reduce the amount of MIP you pay each month.
If MIPs have made you think twice about your FHA loan, call one of NLC Loans’ personal mortgage advisors toll-free today at 1-877-480-8050. They can help you find a way to cancel your MIP and start saving money.