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Eliminating Mortgage Insurance -It’s Like Getting A Raise

Posted by Susanna Haynie on September 25, 2012
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fha MIP eliminationEliminating MIP (see below) is like getting a raise – well, sort of …it’s money that you didn’t have before and isn’t that great? What does it take? It takes for you to be pro-active and to check on a few facts to see if you qualify for the MIP elimination and then you’ll need to know what to do. That could get you an extra $1,800 to $2,500 a year (or even more, depending on your loan )

What is MIP?

FHA (Federal Housing Administration) loans require mortgage insurance premium to cover a possible loss to the lender if the property has to be foreclosed and sold. The premium is substantial and eliminating the MIP would reduce the payment considerably.

The MIP must remain in effect for five years but after that, when the balance is 78% of the original purchase price, FHA will release the requirement and your monthly payment will go down. Since amortization is affected by interest rates, the normal time to reach this 78% point could be from 9 to 12 years at today’s interest rates.

What should I do next?

Check following items:

  • How long have you had your loan? Is it older than 5 years? Then you might be eligible for the MIP elimination
  • When you get your monthly mortgage bill there should be able to locate your loan balance also called a principal – if this loan balance is 78% of your original loan amount click here to calculate. Contact your lender and ask what the next steps are.

Examples

In the example below, the MIP would be released in 9 years 6 months with normal payments. An extra $100 a month would allow the borrower to reach the release point in 7 years 1 month. To reach the release point in the minimum five years, the borrower would have to make an extra $268.04 per month principal contribution.

Releasing the MIP in this example would save the borrower $177.67 per month. The borrower would also save interest, build equity and shorten the term of their mortgage. Once the MIP is released, the borrower could continue the same payment schedule to further accelerate the debt reduction.

To make some projections on your mortgage, click here.

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