If you put less than 20% down on your home and you have a conventional loan, you probably pay PMI or Private MortgageInsurance. This added fee to your mortgage payment increases the amount you pay each month. It’s not a fee you will ever get back – the insurance premiums cover the lender should you default on the loan.
Luckily, unlike FHA loans, you don’t have to pay the insurance for the life of the loan. There is one instance that it does fall off automatically, but you can request it to be eliminated even sooner.
Read on to see how you can get rid of PMI.
Pay the Mortgage Down
You must owe less than 80% of the home’s original value in order to request the elimination of PMI. You can do this in one of several ways:
- Make regular mortgage payments and request elimination of the PMI when you are scheduled to hit 80% LTV. You can see when this would occur by looking at your amortization table.
- Make extra payments to pay your principal down faster. You can make extra payments each month or make a lump sum payment. The extra payments pay your principal down and help you eliminate PMI faster.
The faster you pay the mortgage balance down, the faster you can eliminate the Private Mortgage Insurance from your payment.
Get a New Appraisal
If your home appreciated in value, you may be able to pay for a new appraisal to eliminate the PMI. Before you do this, you’ll want to know that both of the below items apply:
- Your lender will allow the elimination of Private Mortgage Insurance based on the new appraisal. Typically, the rule states that the LTV must drop below 80% of the original appraised value, but many lenders allow you to pay for a new appraisal for this purpose.
- Your home appreciated in value. You can do your own research online or talk to an appraiser to see if your area appreciated in value. If you made changes to your home and the area appreciated, you could be in a good position to have a higher appraised value.
Automatic PMI Elimination
There is one situation when the lender is required to cancel the PMI by law. Once your loan balance drops below 78% of the original appraised value, you no longer have to pay Private Mortgage Insurance. At this point, you do not have to request cancellation of the policy – it is an automatic process. But it pays for you to take care of this before you hit 78% LTV because you would pay the insurance longer than necessary. Instead, you could use that money to pay the principal balance down.
Refinance Your Loan
The final way to eliminate PMI is to refinance your loan into one with lower than an 80% LTV. The combination of your home appreciating and your principal balance being paid down could be enough for you to refinance into a loan with an LTV lower than 80%. If this is the case, you won’t pay the insurance at all on this loan. Of course, refinancing means you will pay closing costs, so you will have to determine if it’s worth it to refinance.
If refinancing will add years back onto your term or the closing costs will take you too long to pay off, you may be better off waiting until you hit lower than an 80% LTV on your original loan.
You have several options to eliminate PMI from your mortgage payment. How you go about it determines how long you’ll actually pay the insurance. The more money you put down on the home originally and the faster you pay the principal balance down, the quicker you can stop paying this insurance.Click to See the Latest Mortgage Rates»