Paying private mortgage insurance can be draining on your bank account, not to mention the fact that it takes away from money that you could be putting towards the principal of your mortgage, getting your balance paid down. While accepting PMI as a part of your mortgage payment when you first purchase your home is normal, as you continue to make your mortgage payments for several years, it can be frustrating to continue to pay that PMI. Luckily, there are a few ways to eliminate it in the future, allowing you to save some money on your payments or put the extra money towards the principal to pay your mortgage down faster.
Remodeling your Home
If you perform any type of remodeling or upgrades on your home, check with an appraiser or real estate specialist to see if they will have any impact on the value of your home. Typically remodeling that occurs to the kitchen or bathroom has the greatest impact on the value of your home, but any upgrades are worth inquiring about. When a remodel or upgrade increases the value of your home, it can decrease the loan-to-value ratio of your mortgage. If your LTV is then below 80 percent, you can inquire about how to remove the PMI. Some banks will remove it with a new appraisal while others will require you to obtain a new loan.
Refinance your Mortgage
If your loan-to-value ratio was already close to the 80 percent mark, refinancing a few years down the road might be just want you need to eliminate the PMI. As an added bonus, you might be able to save some extra money by lowering your rate or changing your term at the same time, allowing you to not only eliminate PMI, but pay more money towards the principal of your loan, rather than focusing your payments on strictly the interest month after month.
Extra Mortgage Payments
If you have the capability of making an extra mortgage payment or two every year, you will be able to hit the principal of your loan head-on, so to speak. Any extra payments that you make on your loan directly impact the principal, as long as you label them as such when making the payments. You can choose to make those extra payments however you like, allowing you to choose the method that is most affordable for your situation. If making equal installment payments on a monthly basis is easiest, simply take one or two mortgage payments and divide the total amount by 12. The amount that you end up with is the extra amount that you should send towards your principal every month. If you know that you have a large sum of money coming to you at a certain time of year, such as a yearly bonus, you can make one lump sum payment at that time, having the same effect on your mortgage. As you directly impact the principal of your loan, you will be able to lower your loan-to-value ratio, enabling you to eliminate PMI.
Make Timely Payments
If you are unable to do anything but pay your mortgage on time, you are still doing yourself a favor. Mortgage payments made on time allow you to avoid unnecessary fees. They also help to pay your principal down, a little bit at a time. If you become delinquent on your loan, it becomes harder to catch up on your payments, making reaching less than an 80 percent loan-to-value ratio seem elusive. In addition, if you have many delinquent payments, the chance of you being able to refinance in the near future is pretty slim, which makes your chances of eliminating PMI even more difficult to achieve.
Private mortgage insurance is helpful when you need to obtain a loan, but after a while, it becomes a nuisance to pay. If you are diligent about your mortgage payments, do your best to make extra payments towards your principal every year and/or make improvements in your home, you might be able to get rid of the PMI and focus on paying your mortgage down faster.Click to See the Latest Mortgage Rates»