Putting 20% down on a house may not be feasible for everyone. That’s why many homebuyers get stuck paying private mortgage insurance (PMI). Having to pay mortgage insurance can make owning a home more expensive. But you may not be responsible for making those payments over the entire life of your loan. Depending on your circumstances, your PMI can either be canceled automatically or upon request. Read on to find out how to get rid of PMI.
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How to Cancel Your Private Mortgage Insurance
There are several different ways to get rid of PMI. One scenario involves contacting your lender when your mortgage loan-to-value (LTV) ratio falls to 80%. At that point, you’ll have 20% equity in your home.
To cancel your PMI, you’ll need to submit a written request. Your lender will then need to ensure that you’ve consistently paid your bills on time and that you’re current on your mortgage payments. You’ll also need to have your home appraised before you can officially shed your PMI. If your home value has fallen, canceling your PMI may not be possible.
According to the Consumer Financial Protection Bureau, your lender must also confirm that there are no other liens on your home before canceling your PMI. If you have a second mortgage – such as a home equity line of credit – you may have to work on paying down that loan (especially if the second loan puts your total LTV ratio above 80%).
When Mortgage Insurance Can Be Terminated Automatically
Your lender must automatically terminate your PMI either halfway through your loan’s amortization schedule or on the date when your principal balance is set to fall to 78% of your home’s original value (whichever comes first). But in order for your lender to terminate your PMI, you must be up-to-date with your mortgage payments.
Keep in mind that there’s a difference between canceling your PMI and having it terminated. If the value of your home has depreciated, you may not be able to cancel your PMI. But your lender may be required to terminate your mortgage insurance before you’ve reached the 78% threshold.
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To find out whether your loan-to-value ratio has dropped to 78%, you can divide the amount you owe by the original purchase price. For example, if you still owe $150,000 on a house that cost $200,000, $150,000/$200,000 = 78%.
How to Cancel Mortgage Insurance Early
The easiest way to get rid of your PMI before your scheduled termination date is to make extra mortgage payments. By making an extra payment every month or several times per year, you can quickly build equity in your home.
You can also cancel your PMI more quickly by making substantial upgrades to your home that increase its property value. Shelling out some cash to revamp your kitchen or the outside of your home could raise your home’s worth while your mortgage balance remains the same. You could also try getting a home appraisal and asking your lender to reference that number instead of your home’s original value.
Another helpful tactic could involve refinancing your mortgage in order to lower your mortgage rate and qualify for PMI cancellation at the same time. But refinancing may not make sense, especially if your LTV ratio doesn’t fall to 80%.
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There are several ways to get rid of private mortgage insurance. You can make extra mortgage payments or revamp your property. And when you have 20% equity in your home, you can ask your lender to cancel your mortgage insurance. Or you can stick to your amortization schedule and wait for your PMI to be terminated automatically when your loan-to-value ratio hits 78% or your loan reaches its midway point.
If you have a VA loan, an FHA loan or a conventional loan that you took out before 1999, the rules we’ve mentioned regarding the cancellation and termination of PMI probably don’t apply. To find out whether you can stop paying private mortgage insurance with those loans, you’ll need to speak with your lender.
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