A lesser known type of mortgage insurance is the type that pays off your mortgage in case you die. You pay a small premium for a small chance of dying. You probably could get better protection through a life insurance policy. The type of mortgage insurance most people carry is the type that insures the lender in the event the borrower, this private mortgage insurance insures your lender.
Many borrowers take out private mortgage insurance (PMI)because their lender requires it. The lender requires it because the borrower is putting down less than 20% of the sales price as a down payment. The less a borrower puts down, the higher the risk to the lender. So, the lender wants insurance against a default.
How Do You Cancel Private Mortgage Insurance?
Once your equity rises above 20%, either through paying down your mortgage or appreciation, you might be eligible to stop paying PMI. The first step is to call your lender and ask how you can cancel your private mortgage insurance.The lender will want proof that your equity position is secure and exceeds 20%.
It will get that proof by requiring you to pay for an independent appraisal. You don't get a voice in choosing the appraiser or the amount that the appraisal will cost you, but it will probably cost between $350 and $500.
FHA rules are different.
If you have an FHA loan, you will need to pay down your mortgage to 78% of your original sales price. Even if appreciation has pushed your equity up, it won't matter. You will need to reduce your original principal balance.
