Do You Really Need Private Mortgage Insurance?

If you purchased your home paying less than 20% down, chances are you had to purchase “mortgage insurance” in order to qualify for your loan. A mortgage insurance policy protects the bank in the event they are forced to repossess your house and sell it at a loss. As with most other types of insurance, you pay a monthly premium on top of your monthly mortgage payment for this policy. A mortgage insurance policy provides the means for purchasing a house you may otherwise be unable to afford, due to a limited down payment.

Once you own a significant portion of your home, usually around 20%, this insurance policy can, and should, be eliminated. Recently enacted federal law made it a little bit easier to rid yourself of your monthly mortgage insurance premium by requiring your lender to automatically eliminate your mortgage insurance, once you own 22% of your personal residence. Unfortunately the 22% equity is based on the value of your loan compared to the home’s purchase price so the lender is not taking into account appreciation on your home – just the gradual paydown of your mortgage.

In addition, these new laws did not take effect until July of 1999. If your mortgage was taken out prior to this date, you will need to check with your lending institution to find out how to eliminate the monthly mortgage insurance premium.