Getting rid of private mortgage insurance, or PMI, can be a challenging task. If you have it, and it’s costing you hundreds of extra dollars a month, chances are you are eager to get rid of PMI as soon as possible. There are a few ways you can go about it – all of which require a bit of time and patience.
What is PMI?
Before discussing how to remove PMI, we should define it. PMI is added to the cost of your mortgage when you put less than 20% down to purchase your home. While there are sometimes no-PMI loan options available to certain buyers, if you’re home hunting and don’t have 20% saved for a down payment, expect to be charged anywhere from 0.3% to 1.5% of your original loan amount for private mortgage insurance annually.
PMI is put in place to protect your lender in the event you stop paying the loan. Sometimes, it’s a necessary concession first-time buyers make when they just want to get into a home and have only scraped together the minimum down payment to get approved for the loan.
Automatic Cancellation of PMI
Once you have paid down your mortgage to 78% of the home’s original appraised value, your lender is required to automatically cancel your PMI. As long as you are current with your payments, this option for getting rid of PMI requires nothing else of you but time. However, it’s not necessarily the quickest option. This cancellation option also doesn’t apply to government-backed home loans. More on that a little later.
Request Cancellation of PMI
If you have paid down your mortgage to 80% of the original appraised value, or you think your home is now worth enough that your loan is at 80% of the current home value, you may request to have the PMI removed. The Consumer Financial Protection Bureau offers this checklist when you think you’re ready:
- Your request for removal of PMI must be in writing.
- You must have good payment history.
- There must be no other liens on the home, such as a second mortgage or HELOC.
- You will likely need a new appraisal of the property.
If your home does not appraise at or above the original appraisal, you may not be able to get rid of PMI until the market value increases.
Refinance to Remove PMI
If the value of your home has increased, refinancing your home loan may be an option for getting rid of PMI. If what you owe on your original loan is 80% or less of what your home is now worth, refinancing is a smart choice – especially if rates are lower than your original mortgage. You will have to get a new appraisal and go through the process of applying for the refinance. But at the end of it, you would be rid of hundreds of dollars for PMI and potentially even a few more dollars with that lower rate.
It’s important to note that if your original mortgage is a government-backed loan, like an FHA loan, refinancing is the only way to remove PMI. FHA loans do not fall within the automatic cancellation requirements mentioned above.
If you’re in a non-FHA loan and you are considering refinancing, discuss your options with a lender, like Orange County’s Credit Union, who can show you whether the savings will be worth the cost through a Total Cost Analysis. Each situation is unique, and if you don’t plan to be in your home much longer, it may be better just to stick it out.
Know Your Rights for Removing PMI
When you close on your home, your lender is required to tell you how long it will take to get rid of PMI. And your annual statement will have information on who to contact when you are ready.
Having to tack on additional money to your monthly mortgage payment might not be something you considered when you started looking for a home. Thankfully, PMI doesn’t last forever. You just need to be proactive if you want it to end as soon as possible.