Combined with paying down your loan, you could potentially have the 20% equity you need to refinance your loan without the need for PMI. This could save you hundreds of dollars a month that could be used to pay down more of your home loan principle each month or used for other things.
Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You'll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.
Getting rid of your private mortgage insurance (PMI) can save you money, and there's no downside. After all, the insurance only protects your lender—your homeowners insurance is the policy that protects you. The sooner you can cancel PMI, the more you'll save.
Even if you don't ask your servicer to cancel PMI, in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments.
The Bottom Line
PMI is expensive. Unless you think you can get 20% equity in the home within a couple of years, it probably makes sense to wait until you can make a larger down payment or consider a less expensive home, which will make a 20% down payment more affordable.
Your mortgage servicer is required to cancel your PMI for free when your mortgage balance reaches 78% of the home's value, or the mortgage hits the halfway point of the loan term, such as the 15th year of a 30-year mortgage.
Refinancing to get rid of PMI can cut your mortgage costs by a large margin and save you money for months or years to come. In addition to dropping mortgage insurance, you could potentially lower your rate and save on interest over the life of the loan.
Get an Appraisal
Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
Refinance into a piggyback loan to get rid of PMI.
If you don't yet have at least 20% in home equity, you can split your refinance into a first and second mortgage to get rid of PMI. Lenders call this a “piggyback refinance loan,” and it works like this: 1. You take out a first mortgage to 80% of your home's value 2.
Loans with shorter terms and larger down payments build equity significantly faster than loans with longer terms. Generally speaking, if you have a good credit score and make your monthly payments on time, you should be able to build sizable equity in your home over the course of five to 10 years.
Federal law allows you to submit a written request for PMI removal, which would start when the principal balance of your loan is scheduled to reach 80% of the original value of the property. Other qualifications for PMI cancellation include being current on your mortgage payments and having a good payment history.
Private mortgage insurance (PMI) is a type of mortgage insurance you might be required to buy if you take out a conventional loan with a down payment of less than 20 percent of the purchase price. PMI protects the lender—not you—if you stop making payments on your loan.
You can remove PMI from your monthly payment after your home reaches 20% in equity, either by requesting its cancellation or refinancing the loan.
When PMI is canceled, the lender has 45 days to refund applicable premiums. That said, do you get PMI back when you sell your house? It's a reasonable question considering the new borrower is on the hook for mortgage insurance moving forward. Unfortunately for you, the seller, the premiums you paid won't be refunded.
No, private mortgage insurance (PMI) has nothing to do with home insurance and won't protect your home's structure or your personal property or offer liability coverage. Mortgage insurance is protection for your lender in case you default on your mortgage loan.
As long as an appraisal shows you are at an 80% LTV or lower, you can stop paying PMI. Unlike FHA mortgage insurance removal, there are no caveats on things like when your loan was opened, what your initial down payment was, or your loan term. Lastly, you could also try disputing the lender's valuation of your home.
The loan has not been more than 60+ days past due in mortgage payments within the last two years or 30+ days past due within the last year. There has not been a property value decline based on the actual sales price or original appraised value.
You pay for PMI as part of your monthly escrow payment. That means in addition to paying your property taxes and homeowner's insurance into your escrow account, you also pay your monthly PMI fee into the escrow account as well.
The lower your LTV, the higher the risk for the lender, which is why the cost of PMI often increases as your LTV decreases. Finally, your credit score also can influence the cost of PMI. The higher your score, the less risk you represent to lenders, so it may be possible to qualify for lower PMI with good credit.
PMI isn't forever
If you're current on your mortgage payments, PMI will automatically terminate on the date when your principal balance is scheduled to reach 78% of the original appraised value of your home. If you choose to use PMI, be sure to talk with your lender about these specific details of your policy.
On average, PMI costs range between 0.22% to 2.25% of your mortgage. How much you pay depends on two main factors: Your total loan amount: As a general rule, PMI expenses are higher for larger mortgages. Your credit score: Lenders typically charge borrowers with high credit scores lower PMI percentages.
Dear (Servicer Name): I am requesting to cancel my private mortgage insurance. The coverage is with (Mortgage Insurance Company Name) and my mortgage loan number is (loan number). I have included documentation to support why I think the equity in my home has reached or exceeded 20%.
If you buy a $300,000 home, you could be paying somewhere between $600 – $6,000 per year in mortgage insurance. This cost is broken into monthly installments to make it more affordable. In this example, you're likely looking at paying $50 – $500 per month.
Also called “upfront PMI,” this option allows you to pay the entire premium in one lump sum at your mortgage closing.