What is Private Mortgage Insurance (PMI) and How Do I Get Rid of It?

Private Mortgage Insurance (PMI) is a type of insurance that lenders require from homebuyers who make a down payment of less than 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults on the loan. It does not provide any protection for the homeowner.

Here’s 7 Tips on How Private Mortgage Insurance Works and How to Get Rid of It:

Requirement

If you make a down payment of less than 20% when purchasing a home, your lender will typically require you to obtain Private Mortgage Insurance.

Cost

The cost of Private Mortgage Insurance varies depending on factors such as the loan amount, down payment size, and your credit score. PMI is usually added to your monthly mortgage payment.

Cancellation

You can typically request the cancellation of PMI once you reach a certain threshold of equity in your home, usually when your loan-to-value (LTV) ratio drops to 80% or lower. This means you have paid down the mortgage balance to the point where it represents 80% or less of the home’s current appraised value.

Automatic Termination

In some cases, PMI will be automatically terminated by the lender once your LTV ratio reaches 78% based on the original amortization schedule, provided you are current on your mortgage payments.

Home Appraisal

To cancel PMI, your lender may require a new appraisal of your home to verify its current value. You may need to pay for this appraisal.

Requesting Cancellation

Contact your lender to request the cancellation of PMI once you believe you have met the requirements. They will provide you with specific instructions and may require documentation.

Refinancing

Another way to get rid of PMI is by refinancing your mortgage. If your home has appreciated in value or you have paid down your mortgage balance to the point where your LTV ratio is 80% or lower, you may qualify for a new loan without PMI.

It’s essential to review your mortgage documents and consult with your lender to understand the specific terms and conditions regarding PMI and its cancellation. Keep track of your loan balance and home value to know when you may be eligible to request the removal of PMI and potentially save money on your mortgage payments.