Mortgage-FHA Loan MIP Cancellation
Since there are so many more FHA mortgages now, I wanted to make sure that everyone knew that FHA MIP can be canceled once the loan reaches 78 percent loan to value.
Once the unpaid principal balance, excluding the upfront MIP (mortgage insurance) reaches 78 percent for 30 year loans, of the lower of the initial sales price or appraised value based on the initial amortization schedule. Although the annual mortgage insurance will be canceled as described, the contract of insurance (meaning FHA still insures the loan) will remain in force for the loan's full term. This applies only to MMI fund.
This is how it will work:
30 year loans: It will automatically be eligible for cancellation when the loan to value reaches 78 percent as explained above. It could reach 78 percent earlier than normal amortization if you have paid a principal curtailment- meaning that you have paid extra money on your loan balance to make it lower and pay off sooner. But it cannot be paid off sooner than five (5) years from the date of origination and if you have been more than 30 days delinquent on your mortgage payment.
15 year loans: for mortgage with terms of 15 years and less and loan to value ratios of 90 percent or greater, the annual mortgage insurance premium will be canceled when the loan to value reaches 78 percent regardless of the length of time the mortgagor has paid the annual insurance premium. The same applies for 15 year loans as 30 year loans regarding curtailment of the mortgage principal balance payment.
For 15 year loan terms and less with loan to value ratios of 89.99 percent and less will not carry mortgage insurance premiums.
It can also be noted that sometimes a new appraisal is ordered, if there is a strong indication that the property value has increased, and especially if you have lived in your home for awhile and (if you have made significant improvement to your home; such as adding square footage that adds value) (cosmetic repairs do not normally add value) your lender can send the case to FHA for review so that the MIP can be cancelled. The same criterion applies as above. With the latest in declining property values, it is something that is probably not existent at this time in the market unless you have added square footage to the dwelling.
Conventional Loans: Mortgage Insurance premiums may be cancelled when the loan to value reaches 80 percent and means that you have 20 percent equity in your home. Loans that are initially originated at 80 percent loan to values do not carry mortgage insurance. The lender uses the guidelines of the investors and they may vary slightly.
Mortgage Insurance Purpose: Mortgage Insurance is protection for the lender in case of mortgage default by the mortgagor.
**please note that other conditions may also apply as with any mortgage information and changes may have occurred at this writing