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.
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