Does Mortgage Insurance Go Away?

As a homeowner, you might have heard of mortgage insurance. It’s a type of insurance that’s designed to protect the lender in case you default on your mortgage payments. But what happens to this insurance once you’ve paid off your mortgage? Does mortgage insurance go away? We’ll answer that question and more in this article.

What is Mortgage Insurance?

Before we dive into whether or not mortgage insurance goes away, let’s first define what mortgage insurance is. Mortgage insurance is a type of insurance that protects lenders when borrowers have a down payment of less than 20% of the home’s value. This insurance can either be private mortgage insurance (PMI) or mortgage insurance premium (MIP).

If you put down less than 20% on a home, you’ll likely be required to get mortgage insurance. This is because lenders see borrowers who put down less money as a higher risk. Mortgage insurance helps mitigate this risk by protecting the lender in case the borrower defaults on their mortgage.

Does Mortgage Insurance Go Away?

The answer to this question depends on a few different factors, including the type of mortgage insurance you have, the amount of equity you have in your home, and the terms of your mortgage. Let’s break it down a bit further.

Private Mortgage Insurance (PMI)

If you have PMI, there are a few ways you can get rid of it. The first way is by reaching 20% equity in your home. Once you have 20% equity, you can request to have your PMI removed by contacting your lender. Your lender will likely require you to get an appraisal to confirm that you have reached 20% equity.

The second way to get rid of PMI is by refinancing your mortgage. If you have 20% equity in your home, you can refinance your mortgage and get rid of your PMI at the same time. This can be a good option if interest rates are lower than when you got your original mortgage, as it could save you money on your monthly payments.

Mortgage Insurance Premium (MIP)

If you have an FHA loan, you likely have MIP. Unlike PMI, MIP does not go away on its own. You’ll need to refinance your FHA loan into a conventional loan to get rid of MIP. You’ll need to have at least 20% equity in your home to qualify for a conventional loan.

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Final Thoughts

In summary, whether or not mortgage insurance goes away depends on the type of mortgage insurance you have, the amount of equity you have in your home, and the terms of your mortgage. If you have PMI, you can generally get rid of it once you have 20% equity in your home or by refinancing your mortgage. If you have MIP, you’ll need to refinance your FHA loan into a conventional loan to get rid of it. Remember that mortgage insurance only protects the lender, not the borrower, so it’s important to make sure you have enough equity in your home to avoid paying for mortgage insurance for longer than necessary.