## Understanding Mortgage Insurance and Its Termination
Mortgage insurance is a type of insurance that protects the lender in case the borrower defaults on their mortgage payments. It is typically required when a borrower makes a down payment of less than 20% of the home’s purchase price.
There are two main types of mortgage insurance:
* **Private mortgage insurance (PMI)** is purchased by the borrower and paid to a private insurer.
* **Government mortgage insurance (FHA or VA)** is provided by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).
PMI is typically canceled automatically once the borrower has paid down their loan to 80% of the home’s original value. FHA and VA loans require different conditions for mortgage insurance cancellation.
## When Does Mortgage Insurance Go Away?
The following table outlines the conditions under which mortgage insurance can be canceled for each type of loan:
| Loan Type | Conditions for Cancellation |
|—|—|
| **Conventional Loan with PMI** | Loan balance reaches 80% of the home’s original value |
| **FHA Loan** | Loan balance reaches 78% of the home’s original value and the borrower has made all mortgage payments on time for the past 5 years |
| **VA Loan** | Loan balance reaches 80% of the home’s original value and the borrower has made all mortgage payments on time for the past 3 years |
## How to Request Mortgage Insurance Cancellation
To request mortgage insurance cancellation, you will need to contact your lender. You will need to provide documentation showing that you meet the conditions for cancellation. This may include:
* A payoff statement from your lender
* A letter from your insurance company confirming that your PMI has been canceled
* A history of your mortgage payments
Your lender will review your request and make a decision. If your request is approved, your mortgage insurance will be canceled and your monthly mortgage payments will be reduced.
## Benefits of Mortgage Insurance Cancellation
There are several benefits to canceling your mortgage insurance, including:
* **Reduced monthly payments:** PMI can add hundreds of dollars to your monthly mortgage payment. Canceling PMI can save you a significant amount of money each month.
* **Increased equity:** When you cancel PMI, you will have more equity in your home. This can make it easier to sell your home or refinance your mortgage in the future.
* **Improved credit score:** Canceling PMI can improve your credit score. This can make it easier to qualify for other types of loans, such as a car loan or a personal loan.
## Conclusion
Mortgage insurance can be a helpful way to protect your lender if you default on your mortgage payments. However, it can also be a costly expense. If you are able to meet the conditions for mortgage insurance cancellation, it is worth requesting it to save money and improve your financial situation.