Module Your Mortgage Plan, explained
Mortgage insurance, explained
The question: What is mortgage insurance, and when does it end?
For: Buyers putting less than 20% down
The short version
Mortgage insurance protects the lender, or the agency behind the loan, if a loan with a small down payment is not repaid. It is what makes buying with less than 20% down possible. It does not protect you.
- Conventional: private mortgage insurance with less than 20% down, usually paid monthly. Its cost depends on your credit score and down payment. You can ask to remove it once the balance is scheduled to reach 80% of the home's original value, and it ends on its own at 78%.
- FHA: an upfront premium of 1.75% of the loan, usually added to the loan, plus an annual premium paid monthly: 0.5% a year on a 30-year loan with at least 5% down, and 0.55% with less (higher on loans above $726,200). It lasts for the life of the loan with less than 10% down, and 11 years with 10% or more.
- USDA: an upfront guarantee fee of 1%, usually added to the loan, and an annual fee of 0.35% paid monthly for the life of the loan.
- VA: no monthly mortgage insurance. VA charges a one-time funding fee instead, which can be added to the loan, and veterans who receive VA disability compensation do not pay it.
Refinancing into a conventional loan once you have enough equity is one way to end FHA or USDA premiums.
Worked example
A $300,000 home at each loan type’s least down
Example- 30-year fixed
- Example rate 6.75%
- Conventional mortgage insurance is an example; yours depends on your credit and down payment
| Loan type | Down | Upfront, added to the loan | Monthly | Ends |
|---|---|---|---|---|
| Conventional | 5% | None | $95 | On its own after about 11 years, 7 months; you can ask after about 10 years, 7 months |
| FHA | 3.5% | $5,066 | $133 | Life of the loan |
| USDA | 0% | $3,000 | $88 | Life of the loan |
| VA | 0% | $6,450 funding fee | None | No monthly mortgage insurance |
The conventional dates assume only the scheduled payments. Extra principal or a rise in the home’s value can bring them sooner.
Example amounts on the $300,000 home. Rates change daily. Your Mortgage Plan shows your own numbers.
Try it
Go deeper
Removing conventional mortgage insurance
You can ask in writing once the balance is scheduled to reach 80% of the original value, or sooner if extra payments get it there. You need to be current on payments, and the servicer can ask for proof the home has not lost value. If it has not ended sooner, it ends at the loan's midpoint. Some loans can drop it sooner on the home's current value with a new appraisal. See dropping mortgage insurance.
Is mortgage insurance worth it?
Waiting to save 20% can take years, while home prices and rents keep moving. Mortgage insurance is the cost of buying sooner with less down. The question is the same one as for the down payment: how much cash to keep, and what that costs each month. Your Mortgage Plan shows it in dollars.
Your next step
Step 11 of 16Cost over timeThe lowest payment is not always the lowest total cost. Add up closing costs, interest and mortgage insurance for the years you will keep the loan.Go to step 11Leave the path: How much to put downDropping mortgage insurance later