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Private Mortgage Insurance (PMI) is an added expense that burdens many homeowners. If you’re tired of paying for this insurance, there are several ways to eliminate it. In this article, we will discuss the most common questions regarding PMI and provide you with answers on how to get rid of it.
What is Private Mortgage Insurance (PMI)?
PMI is an insurance policy required by lenders when the down payment on a home is less than 20% of the purchase price. It protects the lender in case the borrower defaults on the loan.
How much does PMI cost?
On average, PMI costs between 0.5% and 1% of the total loan amount per year. This means that if you have a $200,000 mortgage, you could be paying up to $2,000 annually for PMI.
Can you eliminate PMI without refinancing?
Yes, it is possible to eliminate PMI without refinancing your mortgage. There are a few ways to achieve this.
Method 1 – Reach 20% equity:
One way to eliminate PMI is by reaching 20% equity in your home. This can be accomplished by making extra principal payments or through natural appreciation of property value. Once you believe you have reached 20% equity, you can request your lender to cancel PMI. They may require an appraisal to confirm the current value of your home.
Method 2 – Request PMI cancellation:
Another method to get rid of PMI is by contacting your lender directly and requesting PMI cancellation. Many lenders are legally obligated to cancel PMI once you reach 20% equity. You will need to provide evidence of increased home value through an appraisal or other means.
Method 3 – Refinancing your mortgage:
Refinancing your mortgage is another option to eliminate PMI. If your home value has increased since you obtained your mortgage, you may qualify for a conventional loan without PMI. However, you should carefully consider the costs associated with refinancing before pursuing this option.
Are there any special requirements to cancel PMI?
Yes, there are certain requirements that need to be fulfilled before cancelling PMI. Firstly, your payment history must be in good standing, ensuring that you have not had any recent late payments. Secondly, you should not have any other liens on your property. Lastly, you may have to own the property for a minimum period, typically two years.
Can I eliminate PMI on an FHA loan?
PMI on an FHA loan cannot be canceled; however, you can refinance into a conventional loan once you have enough equity to avoid PMI.
Are there any drawbacks to getting rid of PMI?
While eliminating PMI can save you money, it is essential to consider other factors. Without PMI, your monthly mortgage payment will decrease, but the lender may offer a slightly higher interest rate. It is crucial to weigh the long-term savings against any potential increase in interest costs.
In conclusion, Private Mortgage Insurance (PMI) can be a significant burden on homeowners, but there are methods to eliminate it. By reaching 20% equity, requesting cancellation, or refinancing your mortgage, you can save money on PMI. However, it is essential to review all your options and consider the associated costs before deciding on the best course of action for eliminating PMI from your home loan.
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