When you are buying a home, do you feel like there is an endless list of fees and expenses that add up for the transaction? Some of these costs are unavoidable, such as closing costs. Some of the costs can be reduced, such as choosing a flat-fee real estate agent instead of an agent that charges traditional commissions.
If you have questions about the fees and expenses, then the best thing that you can do is talk to your real estate agent and lender for more information. Mortgage insurance is one cost that might not be necessary, and we can help you find ways to avoid this expense.
Mortgage Insurance: What is It?
Certain types of loans require the homeowner to pay mortgage insurance, although this cost isn’t always required. As a general rule of thumb, you will need to pay mortgage insurance if you buy a home and have less than 20% as a down payment. This cost will be added to the monthly expenses that you will need to pay after closing on the deal and beginning your mortgage payments.
Lenders require this insurance policy for protection in case the homebuyer defaults on the loan in the future. The insurance policy will cover the financial damages the lender must bear in this situation. Most homebuyers pay some sort of mortgage insurance, whether on a separate policy or something that is built into the loan.
How Long Will You Pay Mortgage Insurance?
It isn’t necessary to continue mortgage insurance payments for the duration of the loan. It might feel overwhelming to think about paying that cost for the next 30 years! Instead, talk to your lender to see when you can adjust your payments to remove the cost of mortgage insurance.
A few select loans that have been issued in the past three years require insurance payment for the life of the loan (such as FHA loans). If you have this type of loan, then you might consider the option to refinance so that you can eliminate the mortgage insurance costs.
Other types of conventional loans will allow you to discontinue the mortgage insurance payments after you have paid 20% of the loan. Look at the numbers and mark your calendar. Then, contact your lender when you reach the 20% point so that you can reduce your monthly expenses. In most situations, you can discontinue the mortgage insurance payment without refinancing.
If you have been paying on your home for more than a few years, then it is likely that you have met the requirements to discontinue mortgage insurance payments. Plus, home values are increasing, which helps with the equity ratios to make it easier for you to get to the 20% equity point.
Pay Off Your Home Faster
Just because you don’t need to pay for mortgage insurance anymore, doesn’t mean that you should waste that money. One option is to continue with the same monthly payment and put the value of the insurance premium towards to the balance of your loan. This step will speed up the time that it takes to pay off your home.
Do you have questions about buying a home? Talk to the Atlanta real estate experts: DUFFY Realty. We are here to help with anything that you need: (678) 318-1700