Can You Free Yourself of Mortgage Insurance?

Article excerpt

Can you get rid of your mortgage insurance and quit paying monthly premiums? Probably so, if it's private insurance and you have enough equity in your home. Generally not, if you're insured by the Federal Housing Administration.

Anyone with a conventional loan (not backed by the FHA or VA) would normally have bought mortgage insurance if the down payment came to less than 20 percent. This insurance protects the lender if it has to foreclose and the sale of your house doesn't cover the outstanding loan. Mortgage insurance makes up part or all of the difference.

You need enough coverage to pay off a certain percentage of the loan. Recently, that amount went up for buyers with down payments under 15 percent. Under the new rules, if you buy a house with less than 10 percent down, you need enough mortgage insurance to cover 30 percent of the loan amount. With a down payment of up to 15 percent, your insurance has to cover 25 percent of the loan. With down payments of 15 percent and up, you still buy 12 percent coverage.

Not everyone can get private mortgage insurance. Insurers want creditworthy people in areas where home prices are stable or rising.

Sample prices from the Mortgage Guarantee Insurance Co.: With 5 percent down on a $100,000 mortgage, you pay $61.75 a month the first year and less in later years, as the mortgage balance declines. With 10 percent down, you pay $39 a month in the first year.

Lenders have different rules on when they let you drop mortgage insurance - all of which should be disclosed at the time you buy.

At Countrywide Funding Corp. in Pasadena, Calif., you can cancel your insurance if you pass all of these tests:

Your loan is at least two years old.

You have a good payment record.

You have at least 20 percent equity in your home. ("Equity" is the difference between the current mortgage amount and what the house would probably sell for. …