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As high mortgage rates and elevated home prices continue to crimp housing affordability, Federal Housing Finance Agency’s Bill Pulte is seeking cuts to a common “hidden cost” of homeownership.
Targeting private mortgage insurance, which around 800,000 borrowers used to buy homes last year, Pulte is aligning policies between mortgage giants Fannie Mae and Freddie Mac to allow loan servicers to proactively call borrowers when they’re eligible to drop their mortgage insurance. Previously, only Freddie Mac allowed servicers to do so.
“If your Home is worth more, or you have paid the loan down far enough, you should be able to drop EXTRA Mortgage Insurance,” Pulte wrote in a post on X on Tuesday.
“Right now Fannie Mae will not let your loan company call and tell you that you may qualify because your home has gone up in value! You have to know to ask. Freddie Mac will let them call. That is crazy. We are fixing that. Fannie Mae will follow Freddie’s rule: if you may qualify to drop unnecessary extra insurance because your home has gained value, they can contact you and walk you through how to cancel your PMI. You can stop paying for coverage you do not need and keep the money.”
Read more: What is private mortgage insurance (PMI)? Definition, cost, and how to avoid it
Private mortgage insurance is required for conventional mortgage borrowers who put less than 20% down on their homes. Premium amounts vary depending on factors like credit score and down payment size, but Freddie Mac estimates them at $30 to $70 a month per $100,000 borrowed. Some mortgage brokers have reported that they can be even lower, and U.S. Mortgage Insurers, a trade group for the industry, says premiums are down 25% since 2017.
Still, they can add hundreds of dollars to a homeowner’s monthly costs.
According to Freddie Mac’s calculator, a buyer who puts 10% down on a $450,000 home could expect to pay around $263 a month in mortgage insurance premiums. A 15% down payment drops the monthly payment to $107.
Pulte’s move is a small tweak to the existing system, making it easier for some lenders to proactively notify homeowners who are eligible to drop their mortgage insurance based on their home’s market value.
But there are already mechanisms in place to get out from under this monthly bill.
Homeowners are already able to contact their lender and have their mortgage insurance removed when their equity reaches 20%, either because their home value has risen or they’ve chipped away at their mortgage principal. And lenders are required by law to terminate mortgage insurance when a homeowner reaches 22% equity.
