Private mortgage insurance can add hundreds of dollars to a mortgage payment. Here’s how to remove PMI payments.
The first is that you have by now accumulated/accrued at least 20% equity in the home, and your home is now at 80% of its original appraised value. PMI means lenders are more likely to offer low down payment, high-ratio mortgage loans. That’s good news if you need to buy a home with anything less than 20% down. When the balance drops to 78%, however, the mortgage servicer is required to eliminate PMI.
A side note: while you can cancel private mortgage insurance, you cannot cancel recent FHA insurance.
You can get rid of PMI in one of several ways.
Pay Down Your Mortgage
One way to get rid of PMI is to simply take the purchase price of the home and multiply it by 80%. Then pay your mortgage down to that amount.
According to the Consumer Financial Protection Bureau (CFPB), you must also meet the following conditions in order to have your PMI removed:
Your request must be in writing.
You must have a good payment history and be current on your payments.
Your lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property has not declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel PMI.
Because of that last provision, you may want to check property values in your area before applying to have PMI removed. If they’ve taken a downturn since you purchased your home, the lender may require an appraisal. Often, this is worth your while and the cost. But it’s best to be prepared.
Pay the Mortgage Down to 78% of the Purchase Price
Because of the Homeowners Protection Act, PMI now has a default setting This is a level at which it a lender must cancel it automatically. The mortgage servicer is required to drop your PMI coverage when the outstanding balance of your mortgage drops to 78% of the original value of your home.
This should happen even if you do nothing in an attempt to remove the PMI. You must, however, be current on your mortgage at the time this happens. Otherwise the lender is not required to remove the coverage.
Pay the Mortgage Down to the Midpoint of the Term
This is another automatic PMI elimination process. Even if the amount of the outstanding mortgage does not fall to the 78% level, the lender is still required to remove PMI when at least half of the mortgage term has elapsed. On a 30-year mortgage, for example, PMI must be removed 15 years into the loan. This is true even if the mortgage balance exceeds 78% of the original purchase price of the house.
Refinance the Mortgage
If you are planning to refinance your mortgage to take advantage of a lower interest rate, you may be able to have PMI removed. This will work if your new mortgage is for 80% or less of the home’s current appraised value.
You’ll most likely need an appraisal to refinance your mortgage, anyway. However, you’ll use the appraisal as the basis of your new mortgage, instead of just for eliminating PMI. You’ll need to be sure your new mortgage is for 80% or less of the home’s current value.
Refinancing is the only option for getting rid of PMI on most government-backed loans, such as FHA loans. You’ll have to refinance from a government-backed loan to a conventional mortgage to get rid of PMI.
Prove that the Value of Your Home Has Risen
The final option for having your PMI canceled is to prove that the outstanding balance on your mortgage is 80% or less of the current value of your home. This can happen because of increasing property values, rather than because you paid your mortgage down.
With this option, you’ll definitely have to get an appraisal that proves your property is now worth more. Check with the lender about what must be included in the appraisal before having one done. And be prepared to shell out a few hundred bucks to the professional appraiser.
Also, double-check with your lender if you’ve bought your home within the past two years. Some lenders require at least two years’ worth of on-time payments before they’ll remove PMI. Don’t pay for an appraisal before you confirm your lender’s requirements.
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