If you’re on the market for a mortgage, terms like interest rate, PMI, APR and closing costs are swirling around your brain. One in particular, PMI, comes with a lot of details.
What Is PMI?
When you take out a conventional mortgage with less than 20 percent of the purchase price as a down payment, you must pay PMI or Private Mortgage Insurance. Private Mortgage Insurance protects the lender if you stop paying your mortgage—you pay the insurance premium for their protection should you default on your loan and they need to foreclose on the home. Fortunately, there are a few ways you can cancel PMI that we’ve outlined below.With all the following ways to cancel PMI, the lender can deny the request if your home value has fallen below the purchase price, you are not up to date on payments, you’ve missed payments recently or you have a lien or second mortgage on the property. In addition, some lenders have seasoning periods you must wait before cancelling PMI, usually two to five years.Pay Down Your Principal Loan Balance
When you’ve paid down the principal balance on your mortgage to 80 percent of the original purchase price, you can request the lender cancel your PMI. Once your principal balance reaches 78 percent of the home’s value and you are current on your payments, your lender is required to automatically cancel the PMI, according to the Homeowners Protection Act.Build Equity
If paying your loan down to 80 percent of the value is a long time away, you can request to have your PMI removed if your home’s value has risen by 20 percent. This brings your principal loan balance to 80 percent or less depending on the appreciation. You must ask the lender to remove in writing and they may require an appraisal. Be sure to get a feel for home prices in the area before moving forward, as an appraisal can cost anywhere from $300-600.Refinance
If the value of your home has increased, you may be able to refinance your mortgage without PMI. Be sure to factor in the cost of refinancing to guarantee refinancing does not cost more than your PMI.
Improvements
Though this route may be more expensive upfront, adding improvements to your home—like an additional bedroom or bathroom—can raise your home’s value. If your home’s new appraised value is more than 20 percent of the purchase price, you can request to cancel your PMI.We hope these options help you say goodbye to PMI!
With all the following ways to cancel PMI, the lender can deny the request if your home value has fallen below the purchase price, you are not up to date on payments, you’ve missed payments recently or you have a lien or second mortgage on the property. In addition, some lenders have seasoning periods you must wait before cancelling PMI, usually two to five years.Pay Down Your Principal Loan Balance
When you’ve paid down the principal balance on your mortgage to 80 percent of the original purchase price, you can request the lender cancel your PMI. Once your principal balance reaches 78 percent of the home’s value and you are current on your payments, your lender is required to automatically cancel the PMI, according to the Homeowners Protection Act.Build Equity
If paying your loan down to 80 percent of the value is a long time away, you can request to have your PMI removed if your home’s value has risen by 20 percent. This brings your principal loan balance to 80 percent or less depending on the appreciation. You must ask the lender to remove in writing and they may require an appraisal. Be sure to get a feel for home prices in the area before moving forward, as an appraisal can cost anywhere from $300-600.Refinance
If the value of your home has increased, you may be able to refinance your mortgage without PMI. Be sure to factor in the cost of refinancing to guarantee refinancing does not cost more than your PMI.
Improvements
Though this route may be more expensive upfront, adding improvements to your home—like an additional bedroom or bathroom—can raise your home’s value. If your home’s new appraised value is more than 20 percent of the purchase price, you can request to cancel your PMI.We hope these options help you say goodbye to PMI!
