How Can I Remove PMI from My Mortgage

How Can I Remove PMI from My Mortgage

Private Mortgage Insurance (PMI) is an additional fee that many homeowners pay as part of their mortgage payment. It’s a type of insurance that lenders require from homeowners who obtain a mortgage with a down payment of less than 20% of the home's purchase price. PMI protects the lender in case you default on your loan. However, carrying PMI can be burdensome for homeowners as it increases their monthly mortgage payment without providing any benefit to them. Fortunately, it is possible to remove PMI from your mortgage, and this article will guide you through the various ways you can do it.

Understand the Terms of Your PMI

Before you can remove PMI from your mortgage, it's crucial to understand the specific terms of your PMI as stipulated in your mortgage agreement. Loan providers generally follow standard practices regarding PMI cancellation, but some details might vary. Make sure to review your mortgage contract or contact your lender to get a clear picture of the requirements you need to meet for PMI removal.

Automatic PMI Termination

The first thing to check is whether your loan has provisions for automatic PMI termination. For many home loans, including those backed by Fannie Mae and Freddie Mac, the lender is required to terminate PMI automatically once your mortgage balance reaches 78% of the original value of your home — that is, the purchase price. To qualify for automatic cancellation, you must also be current on your payments. If you're not up to date, PMI will be removed once you become current.

Initiating PMI Cancellation

If you're proactive, you don't necessarily have to wait for automatic PMI termination. You can request that your lender cancel your PMI once your mortgage balance falls to 80% of your home's original value. Again, you must be current on your payments to request this. In addition, some lenders might require you to show that there are no other liens on your home and that its value hasn't declined below the purchase price. It’s advisable to check with your lender for any additional requirements they might have.

Accelerate Your Mortgage Payments

Making extra payments towards your mortgage principal is a straightforward strategy to build equity faster and reach the 80% loan-to-value (LTV) threshold sooner. Any additional funds you can put towards your mortgage will reduce the principal balance more quickly, potentially shaving years off your loan and saving you a significant amount in PMI costs and interest.

Home Value Appreciation

Another factor that can affect LTV is an increase in your home's value. If you believe that your home has appreciated due to market conditions or improvements you've made, you can ask the lender to reevaluate your home's value. A new appraisal (which you'll typically have to pay for) might show that your LTV is lower because your home is worth more. Some lenders will consider this new appraisal and might agree to terminate PMI if the LTV based on the new value meets the requirements.

Refinancing Your Mortgage

Refinancing is another way to eliminate PMI, especially if your property value has increased or interest rates have dropped since you originally financed your home. When you refinance, you’re essentially taking out a new mortgage to pay off your existing one, and this new loan might not require PMI if you have enough equity. Keep in mind, though, refinancing comes with closing costs and possibly a different interest rate, so you'll need to weigh these factors to determine if refinancing makes financial sense for you.

Get a New Appraisal

If you've done significant home improvements, these can increase the value of your property, thus altering your LTV ratio. Presenting proof of enhancements and a subsequent home appraisal showing an increased property value could convince your lender to drop PMI earlier than planned.

Stay Informed and in Communication With Your Lender

Maintaining open lines of communication with your lender throughout the process is vital. Make sure you stay informed about your mortgage balance, home value, and LTV ratio. Periodically check in with your lender to see if you're getting closer to meeting the requirements for PMI removal.

Conclusion

Removing PMI from your mortgage can save you thousands of dollars over the life of your loan. By understanding the rules of PMI cancellation, staying on top of your loan balance, capitalizing on home value appreciation, and considering refinancing, you can free yourself from the PMI payment. Remember to be proactive in initiating PMI cancellation and maintain good communication with your lender to navigate the process successfully. With the right approach and a little diligence, you’ll be able to say goodbye to those PMI fees and enjoy lower monthly mortgage payments.

This article was contributed on Aug 17, 2024