How can you stop paying private mortgage insurance?
The availability of mortgage insurance (PMI) is a great thing for borrowers using conventional mortgages. It allows them to buy a home with a down payment of less than 20%, often as little as 3%. The downside of PMI is its requirement on conventional mortgages with less than 20% down-payment and it adds to your monthly mortgage payment. Obviously, anyone who is paying PMI would rather not.
Automatic Termination of Private Mortgage Insurance
Conventional mortgages allow for elimination of mortgage insurance as you pay down your loan balance. Lenders are currently required to remove mortgage insurance on conventional mortgages once your loan balance falls to 78 percent of the original purchase price as long as you are current on your payments.
Requesting Termination Based on Purchase Price
You can request that mortgage insurance be removed once your balance falls to 80 percent of the original purchase price. You must be current on your payments, and the value of your home cannot be lower than the original price.
Requesting Termination Based on Current Value
In these times of rapidly increasing home prices, you may wonder if you can get PMI removed because your home value has increased so much. In fact, you may be able to, depending on how long you have held your current mortgage.
If you have been paying your current mortgage for at least two years, you can request that PMI be removed. You will need to have the home appraised, and the remaining loan balance must be less than 75% of the current value if the loan is less than five years old, and less than 80% if the loan is more than five years old. You must be current on your payments.
Contact your current mortgage servicer to request a termination based on either purchase price or current value.
Refinancing into a new loan
With today’s falling mortgage interest rates and rising home values, a refinance might make sense. Depending on your original down-payment percentage and how quickly your home value has increased, you may be able to eliminate PMI within two years of your original purchase this way. The balance on the new loan must be less than 80% of the newly appraised value. Contact your favorite mortgage lender to discuss refinance options.
In summary
There are ways to eliminate private mortgage insurance from your monthly mortgage payment besides waiting for your lender to automatically remove it. Elimination of mortgage insurance will have the positive effect of reducing your monthly mortgage payment.
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