Home prices have shown steady increases in many areas over the past few years. As prices have risen, homeowners have also seen a rise in the value of their home equity. As a result, some homeowners with an FHA-guaranteed mortgage may be able to eliminate the cost of mortgage insurance with a home refinance loan.
Several years of making monthly mortgage payments also create equity for most homeowners. Some types of mortgage loans require no mortgage insurance once there is an adequate level of equity in the home. However, FHA loans originated in the past few years may be subject to a mortgage insurance requirement for the life of the loan.
Determine FHA mortgage insurance requirement
If your FHA mortgage was assigned an FHA case number on or after June 3, 2013, there may be a mortgage insurance requirement for as long as you have the loan. The down payment requirement for an FHA loan can be as low as 3.5 percent. For FHA loans made since June 3, 2013, mortgage insurance is required for the term of the loan if the original loan-to-value ratio was greater than 90 percent.
Even if your FHA mortgage was originated with a more substantial amount of equity, there may still be a mortgage insurance requirement. If an FHA case number was assigned to your FHA loan on or after June 3, 2013, the minimum duration of mortgage insurance is 11 years.
Refinance with conventional mortgage
If you have accumulated equity in your home, you may want to refinance your FHA loan with a conventional mortgage. With a conventional loan, you can request the cancellation of mortgage insurance if your loan-to-value ratio is not greater than 80 percent. Another feature of a conventional loan is that your mortgage insurance must be automatically canceled once your loan-to-value ratio falls to 78 percent.
Refinance to withdraw home equity
The elimination of mortgage insurance is certainly not the only reason to refinance a home mortgage. You may prefer to utilize the equity in your home in order to provide funding for purchases unrelated to the house itself. The interest rates available on mortgage loans are usually lower than the interest rates on car loans or credit cards.
Another reason to refinance a home mortgage is to obtain a lower interest rate. Even a small improvement in the interest rate can make a large difference in the long run. Contact a mortgage specialist for more information about home refinance loans.