Pmi Insurance: Changing Your Policy

Private mortgage insurance (PMI) is a type of insurance that some lenders require borrowers to pay as part of their monthly mortgage payments. It is often required when a borrower's down payment on a house is less than 20% of the total value of the property. PMI can add hundreds of dollars to monthly payments, but it is not permanent and can be removed under certain conditions.

Request PMI cancellation when you have 20% equity in your home

If you have 20% equity in your home, you can request the cancellation of your private mortgage insurance (PMI). PMI is a type of insurance that some conventional loan borrowers must pay. It is added to your monthly mortgage payment and offers the owners of your mortgage some protection in the event of a default or foreclosure.

The process for requesting the cancellation of PMI will vary depending on the type of insurance you have. However, there are some general steps that you can follow:

• Build 20% equity: You can't cancel your PMI until you have at least 20% equity in your property. Continue to make payments on your loan each month and divert any extra money you have coming in towards your principal to build equity faster.
• Contact your lender: As soon as you have 20% equity in your home, let your lender know that you would like to cancel your PMI. Follow any necessary steps required by your lender to make this happen.
• Confirm that your PMI has been removed: Ask your lender to confirm that you no longer have to pay PMI and request a mortgage statement with your current payment information. Make sure your monthly payment is lower than what you paid with PMI on your loan.

It's important to note that PMI cancellation requests may vary depending on your lender and the type of PMI you have. For example, with lender-paid mortgage insurance (LPMI), you may need to refinance your loan to remove the PMI. Additionally, your lender may require a written request for PMI cancellation. It's a good idea to review your loan documents or contact your lender directly to understand the specific requirements for cancelling your PMI.

Wait for PMI to terminate automatically when your principal loan balance reaches 78% of the home's original value

One option for removing Private Mortgage Insurance (PMI) is to wait for it to be terminated automatically. This will happen when your principal loan balance reaches 78% of your home's original value.

In the US, the Homeowners Protection Act of 1998 requires lenders to cancel PMI when a borrower reaches a 78% loan-to-value (LTV) ratio. This is known as automatic PMI termination. For example, if you bought a home for $300,000, your PMI will be automatically cancelled once your outstanding balance reaches $234,000.

To be eligible for automatic PMI termination, you must be current on your payments. If you fall behind, your PMI will not be terminated until your payments are brought up to date.

Another option for PMI termination is to wait until you reach the midpoint of your loan's amortization schedule. For example, if you have a 30-year mortgage, the midpoint would be after 15 years. If you have a 15-year loan, the halfway point is after 7.5 years. This is known as final PMI termination.

You can also request PMI cancellation when you have 20% equity in your home. This is when your loan balance reaches 80% of your home's original value.

Get a new appraisal if your home value increases

If your home's value increases, you can request to cancel your PMI by getting a new appraisal. This is one of the methods outlined in the Homeowners Protection Act of 1998, which stipulates that lenders must cancel PMI under certain conditions.

To cancel your PMI, your home's value must have increased enough for you to reach the 20% equity threshold. You will need to request a new appraisal to prove that your home's value has increased. This can be done through a broker price opinion (BPO) or a full appraisal, the latter of which may be required by your lender.

The appraisal will confirm that your property value has risen enough for you to own the required amount of equity. It is important to note that you must also be current on your mortgage payments for PMI cancellation.

Additionally, you can take other steps to increase your home's appraised value, such as improving curb appeal, documenting home upgrades, making minor repairs, and deep cleaning your home.

Refinance to get rid of PMI

Refinancing your mortgage is a great way to get rid of PMI. However, it's important to weigh the benefits against the costs. Refinancing will trigger closing costs and other fees, so it's important to make sure the savings from refinancing outweigh these upfront costs.

Step 1: Reach 20% Home Equity

You must reach 20% equity in your home before you're allowed to refinance. If you refinance with less than 20% equity, you'll need to pay PMI on the new loan.

Step 2: Compare Lenders

You don't have to refinance with your current lender. You can choose to work with a new company. Compare lenders in your area and choose one that fits your needs. Check their refinancing standards to make sure you qualify before you apply.

Step 3: Apply for a Refinance

Fill out an application and submit your financial documentation. Remember to specify that you want to refinance to a conventional loan.

Step 4: Wait for Underwriting and Appraisals to Clear

Once you apply for your loan, the lender will begin the underwriting process. During this time, a financial expert will review your documents to ensure you qualify for a refinance. The lender will also help you schedule a home appraisal. Wait for the appraisal and underwriting processes to be completed.

Step 5: Acknowledge Your Closing Disclosure

After underwriting and an appraisal, your lender will send you a document called a Closing Disclosure. This document outlines your new loan terms and closing costs. Acknowledge it as soon as you receive it. The lender can't schedule your closing until you've had time to review the disclosure.

Step 6: Attend Closing

At the closing, you'll pay your closing costs and sign the new loan documents. From there, you'll make payments to your new lender.

It's important to remember that refinancing is not the only way to get rid of PMI. Other options include waiting for PMI to terminate automatically, requesting PMI cancellation when you reach 20% equity, or getting a new appraisal if your home value has increased.

Refinance into a piggyback loan to get rid of PMI

A piggyback loan is when you take out two separate loans for the same home. Typically, the first mortgage is set at 80% of the home's value, and the second loan is for 10%. The remaining 10% comes out of your pocket as the down payment. This is also called an 80-10-10 loan, although it's also possible for lenders to agree to an 80-5-15 loan or an 80-15-5 mortgage. In either case, the first and second digits always correspond to the primary and secondary loan amounts.

Piggyback loans are a way to avoid paying PMI, as the insurance policy is not required when you're putting less than 20% down on the home. However, there are some drawbacks. Since you're taking out two loans, you'll have to pay closing costs on both, which means paying out double for things like the origination fee and any other administrative fees the lender charges. The second mortgage loan is also likely to carry a higher interest rate than the first.

If you don't yet have 20% home equity, you can use a piggyback loan to get rid of PMI. Here's how it works:

• Take out a first mortgage for up to 80% of your home's value.
• Finance the balance of your equity above 80% with a smaller second mortgage, such as a home equity loan or home equity line of credit (HELOC).
• The result is that you get rid of your old PMI and avoid paying any new PMI premium.

Other ways to get rid of PMI

• Wait for PMI to terminate automatically: When your principal loan balance reaches 78% of your home's original value, your PMI will automatically terminate.
• Request PMI cancellation: You can request PMI cancellation when your principal loan balance reaches 80% of your home's original value.
• Get a new appraisal if your home value increases: If your home's value increases enough that you reach the 20% equity threshold, you can request cancellation.
• Refinance to get rid of PMI: If you have at least 20% home equity, you can refinance into a new conventional loan and avoid PMI payments.

Frequently asked questions