What Is FHA Mortgage Insurance?
There are two types of FHA mortgage insurance: an upfront premium and an annual one. Upfront mortgage insurance is a one-time premium that is paid on closing day. Annual mortgage insurance is a monthly premium included in your mortgage payment.
The upfront mortgage insurance premium (MIP) is 1.75% of the loan amount.
The annual MIP is broken down into monthly premiums added to your mortgage payment. This fee may run between 0.45% to 1.05% of the loan amount each year and is dependent on variables including the size of your down payment, the loan term, and the loan amount.
Is FHA Mortgage Insurance the Same as Conventional Loan Insurance?
The answer to this question is no. FHA mortgage insurance and conventional loan insurance are two different things.
FHA mortgage insurance is a government-sponsored program that helps protect lenders from losses if a borrower defaults on their mortgage. Conventional loan insurance is a private insurance policy that helps protect lenders from losses if a borrower defaults on their mortgage.
FHA mortgage insurance typically costs more than conventional loan insurance, but it also provides more protection for lenders. FHA mortgage insurance typically costs more than conventional loan insurance, but it also provides more protection for lenders.
Does FHA Mortgage Insurance Offer Any Consumer Protection?
In terms of protection against flood, fire, damage, theft, or other insurance-type issues the answer is NO. Homeowners insurance is much different than mortgage insurance. The key to keeping them straight in your mind is to remember that mortgage insurance is a tool for the lender, and homeowner’s insurance is a tool for the borrower.
Is the Removal of Mortgage Insurance Automatic?
It’s best to assume that you must formally notify the lender in writing that you wish to cancel mortgage insurance.
There are some cases where the insurance may be canceled automatically but these typically don’t apply except for FHA mortgages with case numbers issued between January 2001 and June 3, 2013. In those cases, you may have your MIP automatically canceled when your home reaches 22% equity.
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