When buying a home, some individuals are unable to avoid paying private mortgage insurance or PMI. This type of mortgage insurance protects lenders in case the home buyer defaults on their mortgage. Unfortunately, PMI can add hundreds of dollars to your monthly payments. Consequently, the lender benefits should you default. However, there is a silver lining. As you build up the equity in your home, there are 4 options for getting rid of PMI.
Four Options for Getting Rid of PMI
Option #1: Keep paying down your mortgage until PMI can be terminated
According to the Federal Homeowners Protection Act (FHPA), you can remove PMI from your mortgage loan in the following two ways:
- You can request to have PMI removed when your home equity reaches 20%
- You’re allowed automatic or final termination of private mortgage insurance as your home equity reaches specific milestones during your ownership.
When the balance on your mortgage reaches 78% of the original selling price, PMI must automatically be terminated by the lender or servicer.
Option #2: Request cancellation of PMI when the balance on your mortgage reaches 80%
Believe it or not, you don’t have to wait for the automatic cancellation of PMI to kick in. Once your mortgage loan balance reaches 80%, you have the right to request that your lender or servicer cancel it at that point. Furthermore, you can reach that point faster by making extra payments, provided you have the additional cash to spare.
Option #3: Eliminate PMI by refinancing your mortgage
You might want to consider refinancing your mortgage when interest rates are low enough and it makes sense to do so. This could reduce your monthly mortgage payments and save you money with a lower interest rate. Additionally, this may enable you to eliminate PMI if your mortgage balance has dropped below 80% of your home’s market value.
Option #4: Have your home reappraised if its market value has increased
When the housing market heats up, you could see your home equity reach that 20% plateau faster than it does according to your loan payment schedule. If that’s the case, it may be feasible to pay for a new home appraisal. If you have been paying on the home for at least 5 years and your mortgage loan balance isn’t higher than 80%, you can request that PMI be canceled.
Stockton Mortgage Broker: H.O.M.E Lending
For more information about eliminating PMI, call H.O.M.E. Lending at (209) 477-0262. Our mortgage experts are available to help you get the best refinancing rates and provide a seamless and streamlined mortgage process.