There are several ways to get rid of PMI or private mortgage insurance. If you have PMI and are looking to remove it to reduce your mortgage payment, this article will go over 4 ways to get rid of PMI.
What is Private Mortgage Insurance (PMI)?
Private mortgage insurance protects the lender in case you default. You pay monthly to the insurer, and the coverage will pay a portion of the balance due to the mortgage lender in the event you default on the home loan. This doesn’t cover you from facing foreclosure or if you’re behind on your mortgage payments. PMI is usually required when you put a down payment under 20% on a conventional loan. Keep in mind, PMI doesn’t apply to all mortgage loans with down payments below 20%. Government-backed FHA loans and VA loans with low down payment requirements have different rules. Private lenders can also offer conventional loans will small down payments that don’t require PMI, but they typically have higher interest rates.
4 Ways to get rid of PMI
Pay down your mortgage for automatic or final termination of PMI
You can automatically terminate PMI when your mortgage balance reaches 78% of the original purchase price. Lenders also must stop the PMI at the halfway point of your mortgage loan schedule. For example, if you have a 30-year loan, the lenders would terminate PMI when you reach the 15th year of the loan. Given that you haven’t missed a mortgage payment and are in good standing.
Requesting PMI cancellation when mortgage balance reaches 80%
Instead of waiting for automatic cancellation, you can request to cancel PMI once your loan balance reaches 80% of the home’s original value. If you are making extra payments, you can get rid of PMI faster. Consider making additional payments every month or once a year. Even $40 every month can drop your loan balance and interest paid overtime. Some people prefer to pay an extra amount every year towards their principal. This will get you to 20% equity quicker.
Refinance to get rid of PMI
Taking advantage of low mortgage rates can benefit you. Rates are currently still low and refinancing can save you on your monthly payments and get rid of PMI. Remember the same rules apply and your new mortgage balance must be below 80% of the home value. You’re saving on all sides. Refinancing will benefit you if your home has gained lots of value since first purchased. Consider that if you do decide to refinance there will be closing costs. This is an additional payment you will have to make because you are changing the terms of your mortgage. To find out if refinancing benefits you, chat with us via email or through Instagram.
Get a new appraisal
Home equity could reach 20% ahead of the original schedule. Paying for an appraisal may be worth it if so. Appraisals typically cost around $500, depending on where you live. If you have renovated anything in your home that could increase your home value, this can potentially be a good reason to get an appraisal and cancel your PMI.
Know your rights
Homeowners that pay PMI are protected under the Homeowners Protection Act. This federal law is also known as the PMI Cancellation Act which protects you against excessive PMI charges. You have the right to get rid of PMI once you have built up the required amount of equity in your home.
Private mortgage insurance or better known as PMI can be removed from your monthly mortgage payments. There are several ways to remove PMI from your mortgage loan and ultimately depends on how you want to do so. Most ways to remove PMI you’ll need to have your mortgage balance below 80% of the home's value. If you’re looking to remove PMI and want to speak with a local mortgage lender, contact us today! We have been in the mortgage industry for over 20 years and have helped more than 300 families in 2021.