Many homeowners are surprised when they realize how much mortgage insurance is adding to their monthly housing payment. While mortgage insurance can help buyers purchase a home with a smaller down payment, it can also become an unnecessary expense once enough equity has been built.
The good news is that in many cases, homeowners may be able to remove mortgage insurance and significantly lower their monthly payment.
What Is Mortgage Insurance?
Mortgage insurance is typically required when a borrower puts down less than 20% when purchasing a home. It protects the lender in case the borrower defaults on the loan.
There are two common types:
Private Mortgage Insurance (PMI) – typically associated with conventional loans.
Mortgage Insurance Premium (MIP) – required on FHA loans.
Depending on the loan size, mortgage insurance can add anywhere from $100 to $500 or more per month to a homeowner’s payment.
When Can Mortgage Insurance Be Removed?
For conventional loans, mortgage insurance may be removed once the homeowner reaches 20% equity in the property.
This can happen through:
- Paying down the loan balance
- Home appreciation
- Home improvements that increase value
Once the loan-to-value ratio reaches 80%, borrowers may be able to request removal of PMI.
FHA Loans Are Different
FHA loans work a little differently.
If a borrower originally put down less than 10%, FHA mortgage insurance usually remains for the life of the loan. The most common way to remove it is by refinancing into a conventional loan once enough equity has been built.
This is why many homeowners choose to refinance once their home value has increased.
How Refinancing Can Eliminate Mortgage Insurance
Refinancing into a conventional loan can allow homeowners to remove mortgage insurance entirely if they have at least 20% equity.
This can produce meaningful savings.
For example, if mortgage insurance costs $250 per month, eliminating it could save $3,000 per year.
In some cases, refinancing may also allow homeowners to:
- Lower their interest rate
- Reduce their monthly payment
- Consolidate high-interest debt
- Access home equity
Is Removing Mortgage Insurance Worth It?
Every situation is different, and the best way to determine whether removing mortgage insurance makes sense is to run the numbers.
Factors that matter include:
- Current home value
- Remaining loan balance
- Current interest rate
- Potential refinance costs
A quick analysis can show whether refinancing could create meaningful savings.
The Bottom Line
Mortgage insurance serves an important purpose when purchasing a home with a smaller down payment. But once homeowners build enough equity, continuing to pay it may not make sense.
Removing mortgage insurance can be one of the simplest ways to lower a monthly housing payment and improve long-term financial flexibility.
If you’re curious whether removing mortgage insurance might be possible for your home, it may be worth taking a closer look at the numbers.
If you want to see whether removing mortgage insurance makes sense for your situation, we can run the numbers together. It usually takes about 15 minutes and can save you thousands.
You can call or text me directly, or if it’s easier, grab a time on my calendar here:
Schedule a quick 15-minute call
— Garry McDonald
Loan Officer | Tried & True Home Loans
📞 949-534-6686