Getting rid of mortgage insurance premiums (MIP) on an FHA mortgage loan can help you save thousands of dollars.
While it can be difficult to eliminate insurance premiums from your Federal Housing loan, there are steps you can take to get rid of it so you can pay off your mortgage sooner.
What is MIP on an FHA Loan?
The mortgage insurance premium on your Federal Housing loan is required if you put less than 20% down.
This fee protects the lenders from any losses in case you default on your payments. FHA borrowers have to pay MIP for as long as they have their FHA mortgage loan.
Why Should I Get Rid of FHA Loan MIP?
As soon as possible, you should cancel mortgage insurance on your FHA mortgage loan because it isn’t adding equity to your home.
Equity is the amount of your home your own, versus what you still owe on your home. Increasing equity can allow you to take out a home equity loan or line of credit in the future.
As you pay off your loan, you build equity over time. You can build equity faster by eliminating your MIP. Imagine if you used the MIP payment each month on paying down your mortgage principal instead.
Forking out hundreds of dollars each month for mortgage insurance isn’t doing you any favors, so it’s best to get rid of it as soon as you are eligible.
How to Get Rid of FHA Private Mortgage Insurance
Getting rid of mortgage insurance on FHA loans is possible, but most FHA mortgage loans are not eligible for automatic MIP cancellation.
The easiest and most common way to drop mortgage insurance on a Federal Housing Agency loan is to refinance out of it.
However, if you took out your loan prior to June 2013 and you have 22% equity in the home, you can cancel your mortgage insurance premium. For most homeowners, refinancing to a conventional loan is the best option.
How to Refinance a FHA into a Conventional Mortgage
Refinancing your FHA loan into a conventional mortgage can be done in just a few simple steps. When you refinance your loan, you will follow the same process you used to apply for your Federal Housing mortgage.
To start your refinance, apply for a conventional loan with a lender who has great rates. Once you’ve been approved, you need to lock in your rate before the lockdown period is up. Once you have a new mortgage, you will be able to put the money previously spent on insurance premiums to pay down your principal and reduce the amount of interest you pay over time.
Researching Mortgage Refinance Rates
One important aspect of refinancing your FHA loan is doing your homework to ensure you get a good rate.
Each lender you apply with will give you a loan estimate document that describes the details of the payments, loan terms, fees, and closing costs. You want to make sure you are getting the best deal on the market.
More importantly, you don’t want to end up paying more by refinancing to a traditional mortgage.
The goal of refinancing is to save money. Run the numbers before you start and make sure you aren’t at a break-even point with your FHA mortgage.