In some cases, a regulatory body may require you to take out mortgage insurance – so as to protect the lender in the event you are unable to make payments on your home.
In simple terms, mortgage insurance or private mortgage insurance (PMI) safeguards the lender/investor in the event you can no longer make payments towards your mortgage loan.
The cost of insurance (insurance premiums) translates to additional costs on your side. Although the policy protects the lender from default, the borrower bears all the associated costs.
Questions is – how should you deal with mortgage insurance?
With proper planning and patience, you can get rid of mortgage insurance and associated costs – thus reducing the monthly installment you pay towards the mortgage. (The premium is usually included in the monthly mortgage payments).
As a borrower, you have three main options when dealing with mortgage insurance (to understand what option perfectly fits your situation, talk to Ontario mortgage brokers)
- Wait for your legal rights
Your mortgage insurance will eventually come off on its own if you stick to the payment option given to you by the lender.
The law requires that the lender terminate your insurance when you have paid up 22 percent of the original appraised value of the house.
This is a much slower way of dealing with private mortgage insurance; it may take years. In most cases, paying your mortgage faster won’t speed up the process since the 22 percent equity build up is based on the initial amortization schedule.
- Buy down your loan
This option involves you paying down the loan. If you pay down the loan to 80 percent (build up 20 percent equity) of the home’s appraised value, you can request the lender to cancel the mortgage insurance.
The lender may approve or reject the request for a number of reasons including a bad payment history.
Refinancing is another excellent way of dealing with mortgage insurance.
With a refinance, you are going to undergo a new appraisal and if you have over 20 percent equity, then you don’t need mortgage insurance.
For more information on how you can deal with mortgage insurance, talk to Ontario mortgage brokers.