Anonymous
Anonymous asked in Business & FinanceRenting & Real Estate · 9 years ago

# mortgage insurance - how long?

How long do you typicaly have to pay mortgage insurance? Is it harder to eliminate it being many of us are upsidedown and the economy sucks?

Relevance
• Anonymous
9 years ago

If your purchase price is \$100,000, and you choose to use a minimum down payment, which is 3.5 percent for FHA, you will pay \$3,500 as a down payment, and the base loan amount would be \$96,500. On a 30-year term, tthe upfront MIP will be 2.25 percent, which is usually financed into the loan. This \$2171.25 amount is added, making the new amount \$98,671.25. This odd amount is usually rounded down, making the new loan \$98,650. The excess \$21.25 will be added to the closing cost and collected at closing. This calculation creates the loan amount. To find the monthly MIP, multiply \$98,650 times .0055 to get the added MIP, which equals \$542.58. Divide by 12 to get a monthly amount of \$45.21. This amount is the monthly amount that is eligible to be dropped off when the loan reaches 78 percent. Your loan must be current at the time it reaches 78 percent and, for FHA, a five year payment history must be paid for your lender to drop off the monthly MIP amount.

• Jared
Lv 6
9 years ago

If you are upsidedown now, then you really don't want to be MORE upsidedown do you? Mortgage insurance makes sense for you until you have the ability to retain the risk.

Let's say you need \$30,000/yr minimum to live and to make your mortgage payment (just a number). Let's also assume that you are no where near retirement age. Your mortgage is for \$250,000. Now, you want to plan for being disabled. Let's say you estimate the most time you will ever have to be out of work (not even an educated guess -- just a guess) due to disability or hardship is 3 years. You could discontinue your mortgage insurance when your accrued home equity is greater than 90% of three times what you need per year to live on and to pay your mortgage.

.9 x 3 x \$30,000 = \$81,000

So, when your home equity equals or is in excess of \$81,000 (given all of the assumptions above), you could switch from insurance to retention [you retain the risk].

I'll point out also that this works only as long as you do not increase your debt or expense load. And, it takes as a given that you do not have any money saved.

When forecasting the future, you need to take into account how much your bills and debt will increase over the time period leading up to you dropping your mortgage insurance, and how that will grow/fall once you have dropped the insurance.

If you have savings that is easy to get to, then you could subtract that from your home equity value needed to drop your insurance under the formula I gave you above.

When facing cash flow problems, you start looking at ways to cut costs (save money -- more cash in your hand each month, etc.). I would suggest that you look for less risky things to cut... like discretionary spending, eating out, entertainment -- and increase your savings along the way. Cut the fat before you cut your insurance.