Mortgage insurance is used as an alternative to a large down payment. Mortgage insurance is generally required on loans used to purchase a home with less than 20% down payment and refinance transactions in excess of 80% loan to value (LTV). Knowing the cost of mortgage insurance is helpful in deciding which loan options are the least costly to the borrower. Mortgage calculators are very effective at measuring the costs between different loan amounts with and without mortgage insurance. A mortgage calculator will estimate the monthly payment for private mortgage insurance or mortgage insurance over a range of down payments.
When a borrower closes on a mortgage loan their loan to value ratio may be greater than 80% since there possibly will be very few options to avoid a small down payment and the mortgage insurance that may be required. The loan to value may be reduced in a few years as the borrower pays off the loan principal and the value of your home appreciates. Mortgage insurance costs can be reduced if the is able to remove the mortgage insurance monthly payment in the early years or months of the home loan. A mortgage calculator can calculate the mortgage loan to value at the time the loan was taken out and at any point in the future with an amortization schedule.
The Homeowner’s Protection Act, passed in 1998, mandates that lenders cancel mortgage insurance when the loan-to-value ratio reaches 78%. A provision in the law also states that lenders must terminate insurance at the borrower’s request when the loan balance hits 80% of the original value. The provisions in the law does include terms that state that the insurance cancelation request may be rejected if the borrower was 30 days late on the mortgage within the last 12 months or 60 days late within the last 24 months or there is a second mortgage on the property or the property has declined in value.
Because borrowers pay for mortgage insurance that protects the lender, the responsibility for terminating the insurance when it is no longer needed is the responsibility of the borrower. Other than conditions to remove the mortgage insurance as mandated by law, the lender has no vested interest in reducing or removing mortgage insurance. A home loan borrower may have to pay for an appraisal to substantiate that the home’s loan-to-value ratio is 80% or less. A mortgage calculator can help ascertain the principal amount of a loan that has been outstanding for some time to aid in the process of determining the home’s present loan to value ratio. In fact, a mortgage calculator can calculate the normal principal reduction with an amortization schedule to determine the future balance of a loan in the coming months or even years. An additional resource provided by a mortgage calculator is the ability to calculate the mortgage balance now or in the future based on additional payments used to reduce the balance. This way, a borrower can plan future additional principal payments to reduce the loan balance in the future as part of a plan to eliminate the mortgage insurance cost.
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