Were you required to purchase Private Mortgage Insurance (PMI) when you bought your home? Read more below to find out how you can get rid of PMI for good.
How to get rid of PMI.
To remove PMI or private mortgage insurance, you must have at least 20% equity in your home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home’s original appraised value. When the balance drops to 78%, the mortgage servicer is required to eliminate PMI. Try calling your mortgage lender and see how close you are to that 20% to see if they can just cancel it. This one little phone call could save you money this year! For example, PMI on a $300,000 home is about $3,000 per year.
Other ways to cancel PMI sooner.
Here are steps you can take to cancel mortgage insurance sooner or strengthen your negotiating position:
- Refinance: If your home value has increased enough, the new lender won’t require mortgage insurance. When mortgage rates are low, as they are now, refinancing can help you to not only get rid of PMI, but to reduce your monthly interest payments. It’s a double dose of savings.
- Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding whether you meet the 20% equity threshold. Ask if your mortgage lender or homeowners insurance agent can provide a good recommendation on an appraiser. This may cost you a few hundred dollars to get your home appraised but can save you thousands of dollars in the long run. Before paying for an appraisal, ask the lender whether this tactic will work to get rid of PMI for your loan.
- Prepay your loan: Paying a little extra towards your mortgage each month can dramatically drop your loan balance over the course of the years. This tactic alone will help you get closer to canceling your PMI.
- Remodel: Add a room or a pool to increase your home’s market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure. This is a double win, you’ll be able to enjoy the amenities and the savings on your mortgage payment.
Other requirements to cancel PMI.
According to the Consumer Financial Protection Bureau, you must meet certain requirements to remove PMI:
- You must request cancellation in writing.
- You must be current on your payments and have a good payment history.
- You might have to prove that you don’t have any other liens on the home (for example, a home equity loan or home equity line of credit).
Private mortgage insurance adds to your monthly mortgage expenses, but it can help you get your foot in the homeownership door. Find out more about Alltru’s mortgages.
Until next time,