What is PMI and how can I remove it from my mortgage?
BRIAN BIRK | 4-MINUTE READ
PMI stands for Private Mortgage Insurance. It is a type of insurance that protects the lender in case you default on your mortgage. PMI is typically required by lenders when the down payment on a home is less than 20% of the property’s value. It allows people with smaller down payments to qualify for a mortgage, but it adds an extra cost to your monthly mortgage payments.
To remove PMI from your mortgage, you generally have a few options:
- Reach the 20% equity threshold: Once you have paid down enough of your mortgage so that your loan-to-value (LTV) ratio reaches 80% or less (meaning you have at least 20% equity in your home), you can request the removal of PMI.
- Request a PMI cancellation: Some lenders may allow you to request PMI cancellation if you believe you have reached 20% equity in your home before the scheduled time. You may need to provide an appraisal to verify the current value of your home.
- Automatic PMI termination: If your mortgage was originated after July 29, 1999, your PMI should automatically terminate once you reach the midpoint of the loan’s amortization schedule (typically around 15 years for a 30-year loan) and if you have a good payment history.
- Refinance your mortgage: If you are unable to reach the 20% equity threshold through regular mortgage payments, another option is to refinance your mortgage. If the new loan-to-value ratio is below 80%, you may be able to avoid PMI on the new loan.
- Make home improvements: Increasing the value of your home through renovations and home improvements might help you reach the 20% equity threshold faster, allowing you to remove PMI.
It’s important to note that the specific rules and requirements for removing PMI can vary depending on the type of mortgage and the lender you are working with. Be sure to check your loan agreement or contact your lender directly to understand their specific PMI removal process. Also, keep in mind that some types of loans, such as FHA loans, have different rules regarding PMI, so it’s crucial to understand the terms of your specific mortgage agreement.
In order to understand PMI and questions about removing it please contact one of our professional mortgage brokers today at 888-416-0920
