When your lender says you need Private Mortgage Insurance, be sure to pay attention to when that extra payment will end.
PMI is designed to protect the lender, not the borrower, in the event of a mortgage default.
Private mortgage insurance is required for conventional mortgage borrowers whose down payment is less than 20% of the home price.
The most common way to pay PMI is as a monthly fee rolled into your mortgage payment for several years.
As you pay down your mortgage and build equity, you may become eligible to cancel PMI.
Cost of PMI will be based on Home Price, Credit Score, Down Payment amount, and Loan Type
Government loan programs have their own version of mortgage insurance.
Talk to your lender about financing structures that work for you, and if they include PMI, talk to them about payment options.
How to Remove Private Mortgage Insurance
PMI automatically falls off at 78% of the principal balance (22% equity in the home). When you closed on your home loan, an amortization schedule was provided by the lender. This schedule indicates the date when your loan balance is expected to reach 80% of the property's original value. Keep an eye on this date and on your progress toward that milestone because it may be the date you're eligible to terminate PMI. At that point, ask your lender if you can drop the PMI, or wait until the lender does so automatically.To reach that milestone faster, there are a few things you can do:
Find out whether your home value has increased. If your property has appreciated, you may have more equity than you realize. Ask your lender whether cancellation based on your home's current value is an option. You may need a professional appraisal, and eligibility requirements can vary.
Pay down your mortgage faster. Making additional payments toward your principal can help you build equity more quickly. Check with your lender about how extra payments will be applied and whether any prepayment restrictions apply.
Consider refinancing. Refinancing could save you a lot of money over the lifetime of your loan if you can qualify for a lower interest rate, and it may have the added benefit of eliminating PMI. Since refinancing almost always includes an appraisal, it could also reveal that you have more equity than you realized.
A Final Tip: Watch your credit score. Lenders require a good payment history before approving a request to cancel PMI.
This article is for general education purposes. Mortgage insurance rules vary by loan type and lender; consult your mortgage lender for requirements specific to your loan.
