YOU ASK:

When can I cancel mortgage insurance?

WE ANSWER:

Mortgage insurance is required only if you put up less than 20% of the down payment when you buy a house.

There are some instances when you can cancel mortgage insurance:

  • You already have 20% equity on your home.

    This means that you already own 20% of the value of the home. This can be done by your regular mortgage payments. This can also be speeded up when the value of the house increases. If the house is located in an area or neighborhood where the property prices are increasing, chances are your equity on the house will also increase.

  • Your mortgage agreement provides for cancellation of mortgage insurance.

    There are some loan agreements that don't allow the cancellation of mortgage insurance. You should check with your contract. There are also provisions in some mortgage agreements which provides for automatic cancellation of mortgage insurance once the loan balance reaches 78% of the property's value (based on the time the mortgage was released).

  • You make a request for the cancellation.

    Sometimes, lenders would continue to charge for mortgage insurance even when you have reached an equity of 20%. It's up to you, then, to check whether you already have the needed equity and to request the lender to cancel the insurance.

An added consideration is in how you use your home. If you use it as a primary residence, the lender may allow you to cancel if you already reached the 20% level in equity. However, if you start renting out your house, the percentage increases to up to 35% since your house is now being used as an investment property to gain rental income.

Some instances when the lender or the bank will not allow you cancel your mortgage insurance would be if:

  • The value of the property has declined
  • You have taken out a second mortgage
  • You have been late in remitting for your monthly mortgage payments
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