Life Insurance Vs Mortgage Protection: Key Similarities And Differences
Most MPI policies work the same way as traditional life insurance policies. Every month, you pay the insurer a monthly premium. This premium keeps your coverage current and ensures your protection. If you die during the term of the policy, your policy provider pays out a death benefit that covers a set number of mortgage payments. The limitations of your policy and the number of monthly payments your policy will cover come with the policys terms. Many policies agree to cover the remaining term of the mortgage, but this can vary by insurer. Like any other type of insurance, you can shop around for policies and compare lenders before you buy a plan.
However, MPI differs from traditional life insurance in a few important ways.
Removing Fha Mip: Key Takeaways
To eliminate the annual mortgage insurance premium on an FHA loan, you can either:
- Wait for MIP to expire If you put down at least 10% when you bought the home, your FHA MIP expires after 11 years
- Refinance into a conventional loan Replacing your FHA loan with a conventional loan eliminates the FHAs MIP requirement. This is the only FHA MIP removal option if you put less than 10% down
The good news is that home values are rising nationwide. So many FHA homeowners have enough equity to refinance into a conventional loan and cancel mortgage insurance even if they only bought a few years ago.
You can check your FHA removal eligibility with a lender.
Fha Mortgage Insurance Premium
If you cant qualify for a conventional loan product, you might consider an FHA loan. Like some conventional loan products, FHA loans have a low-down payment optionas little as 3.5% downand more relaxed credit requirements.
Lenders require mortgage insurance for all FHA loans, which are paid in two parts: an up-front mortgage insurance premium, or UFMIP, and an annual mortgage insurance premium, or annual MIP. Both costs are listed on the first page of your loan estimate and closing disclosure.
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When Is Pmi Required
You may have to pay for PMI if you’re purchasing a house or refinancing your mortgage. Lenders may require PMI on certain loans if:
- Your down payment is less than 20%. Most conventional lenders require a down payment of at least 20% of the purchase price. You can calculate your down payment percentage by dividing the amount you plan to put down by the lesser of the market value or purchase price of the home. If you can’t afford to put down at least 20% on a purchase, you may have to pay for PMI.
- For refinance loans, your loan-to-value ratio is over 80%. If you’re refinancing your current mortgage, most conventional lenders require an LTV ratio of 80% or less to avoid having to pay for PMI. You can calculate your LTV ratio by dividing your new mortgage amount by the market value of your home. If your LTV is over 80%, you may need PMI.
How To Get Rid Of Pmi On Va Loans
This is a trick question! Fortunately for Veterans, there is no monthly PMI on a VA loan. Of course, no monthly PMI gives VA loans an advantage over other low to no down payment loans. Although, there is an up-front and financed VA funding fee.
At closing, VA eligible borrowers are charged between 1.25% 3.3% of the loan amount in the form of the VA funding fee. The fee is financed on top of the base loan amount. Once it is on the loan, it is there for the life of the loan and included in the loan balance.
Although, there is a way to avoid the VA funding fee in the beginning. If the Veterans Administration considers the Veteran 10% or more disabled, the VA funding fee is waived. Thus, the borrower is not charged the fee.
Once a VA loan is obtained, there is really no mortgage insurance to cancel. Be happy that you have a VA loan with no monthly PMI. Contact us to discuss the right PMI option for you.
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How Do I Get Rid Of Pmi With Equity
To remove PMI, or private mortgage insurance, you must have at least 20% equity in the home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home’s original appraised value. When the balance drops to 78%, the mortgage servicer is required to eliminate PMI.
Wait For Automatic Pmi Cancellation
Under the Homeowners Protection Act, PMI should be cancelled when the amount owed reaches 78% of the original value of your home.
This percentage is also known as loan-to-value ratio , which is the opposite of your home equity. If the value of your house is $300,000, then PMI should be cancelled when you pay your home loan down to $234,000, even if the loan itself was for $260,000. This is why making a down payment of 20% bringing your LTV ratio to 80% generally helps you avoid PMI.
There are some exceptions to this 78% rule, however. First, you must be up to date with your payments second, if your loan is considered high-risk , a mortgage lender can establish a different date for cancellation. However, as long as you maintain a good payment history and a good , you can expect your PMI to be cancelled when you reach that 78% mark.
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What Is Mortgage Protection Insurance
Mortgage lenders and insurance companies alike once offered a product called mortgage protection insurance. Though the actual features varied, most of these policies were a form of , intended to pay off the policyholders home mortgage if they were to pass away.
The death benefit on this type of policy was paid out directly to the mortgage lender, bypassing the insureds family altogether. This coverage also decreased over time in line with the mortgage loans amortization, even though premiums were level for the length of the policy.
Today, providers offer term coverage designed to help family members cover the value of the mortgage with other financial needs upon the death of a loved one.
Mpi Vs Fha Mortgage Insurance
MPI also isnt the same thing as the mortgage insurance you pay on an FHA loan. When you take an FHA loan, you must pay both an upfront mortgage insurance premium and a monthly premium. Like PMI, FHA insurance payments protect the lender against default on mortgages. However, FHA mortgage insurance affords you no protection as the homeowner.
Regardless if your loan has PMI or FHA insurance, it can be a good idea to buy an MPI policy if you cant afford a traditional life insurance policy and want to ensure your home goes to your heirs. They will have the opportunity to take over the payment, but its not always easy to budget for a cost you arent expecting.
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Mortgage Protection Insurance Cost
How much a mortgage protection insurance policy may cost you depends on a few different factors. Insurance companies will examine the remaining balance of your mortgage loan and how much time is left in your loan term. As with a traditional life insurance policy, theyll also take your age, job and overall risk level into consideration. In general, though, you can expect to pay at least $50 a month for a bare-minimum MPI policy.
Get approved to refinance.
What Happens To Debt At Death
The death of a borrower changes things, but perhaps not as much as youd think. The loan still exists and needs to be paid off, just like any other loan. But the stakes can be higher with housing debt, because family members may live in the house or have emotional attachments to it. Survivors can handle the mortgage in several ways, some of which will be more appealing than others.
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Term Life Insurance Vs Mortgage Life Insurance: Which Is Best For You
Term and mortgage life insurance policies have several similarities, but term policies offer much greater flexibility and are significantly cheaper â especially if you’re relatively healthy and a nonsmoker.
Here are some of the key differences between term life insurance and mortgage life insurance:
|Health questions and medical exam||Health questions|
We recommend term life insurance over mortgage life insurance if you’re in good health because you’ll get cheaper quotes, and the death benefit goes to the beneficiary you choose.
If there are more pressing expenses at the time of your death or your family decides not to keep the house, they can use the full term life insurance payout however they choose.
Mortgage life insurance quotes are more expensive for healthy homeowners because most policies don’t require you to get a medical exam prior to purchase. Therefore, mortgage life insurance companies err on the side of caution by assuming you’re higher risk and raise their rates accordingly.
However, mortgage life insurance is a great alternative if you have pre-existing medical conditions that prevent you from getting traditional term insurance.
Life insurance policies with limited underwriting, such as simplified issue or guaranteed acceptance policies, regularly restrict death benefits to $100,000 to $250,000. While this payout could replace your income or pay for college tuition, it’s probably not enough to also cover your mortgage.
How To Remove Pmi In 4 Steps
Its important to know how long PMI lasts. FHA loans typically have mortgage insurance that lasts for the life of the loan unless youve made a down payment of at least 10%, in which case, you can remove PMI after 11 years.
For conventional loans, the Homeowners Protection Act of 1998, also known as the PMI Cancellation Act, set mandatory guidelines for mortgage lenders so that consumers can understand when they can stop paying PMI. Here are four options for how to remove PMI:
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How Can I Avoid Mortgage Insurance Altogether
- Its very simple to avoid PMI
- Dont take out an FHA loan
- And put down at least 20% when purchasing a home
- Or have 20% equity when refinancing an existing mortgage
Yes! Its pretty simple, really. Just put down 20% or more when you buy a home, or dont borrow more than 80% of your homes value when you refinance .
Theres nothing more to it. You wont have to pay PMI!
But if thats not an option for you, as it isnt for most, its still possible to avoid paying private mortgage insurance altogether while putting no money down thanks to a combo loan.
Heres how it works. If you keep your first mortgage at 80% LTV, and add a second mortgage of 20%, you can still obtain 100% financing without paying PMI.
The first lender doesnt care as long as their loan stays at or below the key 80% LTV threshold.
Along with that, youll likely snag a lower blended mortgage rate by splitting the loan up. Learn more about mortgage combos and blended rates.
Or you can look into certain loan products like the Bank of America No Fee Mortgage, a so-called no cost loan that doesnt require mortgage insurance, presumably even if the loan exceeds 80% loan-to-value.
The TD Right Step mortgage also allows a three percent down payment with no mortgage insurance required.
However, as mentioned, these programs typically have the mortgage insurance built into the interest rate, so its not really free. Its just not directly paid out of pocket.
What’s The Difference Between Mortgage Protection And Private Mortgage Insurance
Mortgage protection is an optional purchase that guards you against the possibility that you might not be around to pay off your family’s mortgage. Private mortgage insurance is a coverage that lenders require when your down payment is below 20%, and it protects the lender in case you default.
Editorial Note: The content of this article is based on the authorâs opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.
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How Long Do You Have To Buy Private Mortgage Insurance
Borrowers can request that monthly mortgage insurance payments be eliminated once the loan-to-value ratio drops below 80%. Once the mortgage’s LTV ratio falls to 78%, the lender must automatically cancel PMI as long as you’re current on your mortgage. That happens when your down payment, plus the loan principal you’ve paid off, equals 22% of the home’s purchase price. This cancellation is a requirement of the federal Homeowners Protection Act, even if your homes market value has gone down.
Do I Need Mortgage Protection Insurance
In most cases, you do not need mortgage protection insurance. If you are concerned about your family’s ability to remain in your home should you pass away, look into term life insurance instead. If you are concerned about making payments if disabled, look into disability insurance instead.
If you are unable to get a term life policy or a disability policy but can qualify for mortgage protection insurance at an affordable rate, you may wish to consider it. MPI can take a financial burden away from your loved ones and let them keep on living at home in the event of your disability or death.
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How To Get Rid Of Pmi
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If you have private mortgage insurance, youre probably looking forward to the day when it ends, sweetly reducing your mortgage payment.
Although you pay for PMI, the coverage protects the lender, not you, against the risk that you’ll stop making your mortgage payments. Nearly 18% of mortgages in the U.S. have PMI, and homeowners with PMI, on average, will make payments for 5 1/2 years before the insurance ends, according to U.S. Mortgage Insurers, a Washington, D.C.-based industry group.
Your mortgage servicer is required to cancel your PMI for free when your mortgage balance reaches 78% of the homes value, or the mortgage hits the halfway point of the loan term, such as the 15th year of a 30-year mortgage. You may be able to get rid of PMI earlier by asking the mortgage servicer, in writing, to drop PMI once your mortgage balance reaches 80% of the homes value at the time you bought it.
Heres a closer look at those options and two others for getting rid of PMI. These apply only to private mortgage insurance for conventional loans. The rules are different for mortgage insurance for government-backed mortgages, like FHA loans.
Pay Down Your Current Mortgage Balance
If you’re planning to refinance your home but the current LTV is over 80%, consider paying off more of your mortgage balance first. If your mortgage servicer doesn’t penalize you for prepayments, you can consider paying off more of your mortgage right away. Otherwise, you may have to wait until you’ve made a few more monthly payments.
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Your Pmi Rights Under Federal Law
Homeowners who pay for PMI should be aware of their rights under the Homeowners Protection Act. This federal law, also known as the PMI Cancellation Act, protects you against excessive PMI charges. You have the right to get rid of PMI once youve built up the required amount of equity in your home. Lenders have different rules for cancelling PMI, but they have to let you do so.
Before you sign a mortgage with PMI, ask for a clear explanation of the PMI rules and schedule. This will enable you to accurately track your progress toward ending the PMI payment. If you feel your lender is not following the rules for eliminating PMI, you can report your complaint to the Consumer Financial Protection Bureau.
Remember: You might be able to eliminate PMI under a few other circumstances, too, such as when your home value rises or when you refinance the mortgage with at least 20 percent equity.
How To Remove Private Mortgage Insurance
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
When home prices are high, saving money for a large down payment can be tough and stretch your budget. Private mortgage insurance offers a solution, but it adds to your monthly payments. PMI falls off either automatically once you gain enough equity, by requesting its termination or by refinancing your loan. Read on to find out more on how to remove PMI.
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Prove That The Value Of Your Home Has Risen
The final option for having your PMI canceled is to prove that the outstanding balance on your mortgage is 80% or less of the current value of your home. This can happen because of increasing property values, rather than because you paid your mortgage down.
However, you’ll have to put in some work here. First, you may want to get a feel for property values. Talk to a local realtor or do some digging online to see if your hunch about increased property values is correct.
Then, contact your mortgage lender to get the appropriate paperwork for removing the PMI. Be sure you’re following a checklist of lender requirements as you complete the process.
With this option, you’ll definitely have to get an appraisal that proves your property is now worth more. Check with the lender about what must be included in the appraisal before having one done. And be prepared to shell out a few hundred bucks to the professional appraiser.
Also, double-check with your lender if you’ve bought your home within the past two years. Some lenders require at least two years’ worth of on-time payments before they’ll remove PMI. Don’t pay for an appraisal before you confirm your lender’s requirements.