Have you ever wished that there was a way that you could knock a few hundred dollars off your monthly mortgage payment? Learning how to remove private mortgage insurance might provide a way to achieve your goal.
How to Remove Private Mortgage Insurance
As the Consumer Financial Protection Bureau explains, private mortgage insurance, or PMI, is an expense that you might be carrying if you have a conventional loan and made a down payment of less than 20 percent. This type of insurance doesn’t protect you; it protects your lender if you default on your loan. However, you’re the one who pays for it, and it can add hundreds of dollars to your monthly mortgage payment. Needless to say, learning how to remove private mortgage insurance can produce substantial savings. There are several ways to make it happen.
Wait for an Automatic Cancellation
According to The Mortgage Reports, the easiest way to say goodbye to private mortgage insurance is to simply wait. When your loan balance is at or below 78 percent of the home’s appraised value, your mortgage servicer is required to cancel your PMI for free, so the PMI will be automatically canceled. However, waiting can come at a cost. There are actions that you can take that would allow you to get rid of the payments earlier.
Request an Early Cancellation
As NerdWallet points out, your mortgage servicer is required to cancel PMI when your home loan’s balance reaches 80 percent of your home’s original value if you make a written request that they do so. What is your home’s original value? For these purposes, it’s the lesser of either the appraised price when the loan was originated or the sales price when you purchased the home. To make this work, you’ll need to jump through a few hoops:
- Complete a written request. Because this method takes a little time to put into action, you’ll want to figure out when you’ll hit the 80-percent mark. Then, send a written request to your mortgage servicer several months before that point so that they have time to process it.
- Have a good payment history. Late payments can make canceling PMI tough. You should have no 30-day late payments the prior 12 months and no 60-day late payments in the past 24 months.
- Be free of other liens. The mortgage must be the only debt against the home.
- Provide proof of value. Be prepared to provide proof that the home’s value hasn’t fallen. This generally requires an appraisal.
Pay Down Your Mortgage
When it comes to ditching PMI, obtaining 80 percent or more equity is key. As FortuneBuilders indicates, paying down your mortgage is one way to do that. The sooner you reach 80 percent, the sooner you can request an early cancellation and remove the cost of PMI from your budget.
Get a New Appraisal
Has your home’s value increased substantially since you purchased it? If the housing market has improved, your neighborhood has become more desirable, or you’ve completed renovations or repairs that add value to your property, a new appraisal could show that you now have 80 percent or more equity. As Investopedia notes, finding yourself in that situation means that you can make the case to your mortgage servicer that PMI is no longer necessary.
Refinance Your Loan
If your financial situation has improved since you first purchased your home, then refinancing your mortgage can be an excellent way to snag a lower interest rate, reduce your monthly mortgage payment, and secure a loan with better terms. As DoughRoller reports, it can also be a great chance to remove your private mortgage insurance. In fact, for borrowers with government-backed loans, refinancing is generally the only way to shake the mortgage insurance requirement from their loans. When you refinance, you replace your existing loan with a new loan. If an appraisal shows that your home value and mortgage balance have hit a loan-to-value ratio of 80 percent or less, then you won’t be required to have PMI on your new loan.
Whether you’re an aspiring homebuyer eager to avoid private mortgage insurance or a homeowner interested in refinancing to remove PMI, PrimeLending Twin Cities can help you figure out your next move. Contact us today to get started.