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Tips For Getting Rid of PMI Quickly

Tips For Getting Rid of PMI Quickly

Private Mortgage Insurance (PMI) is typically required when you have a conventional mortgage and make a down payment of less than 20% of the home’s purchase price. PMI protects the lender in case you default on your loan. However, PMI can add a significant amount to your monthly mortgage payments, so understandably, many homeowners are eager to eliminate it. Here’s how you can get rid of PMI:

  1. Reach 20% Equity through Payments: The most straightforward way to get rid of PMI is by paying down your mortgage. Once you have paid off enough of your loan to reach 20% equity in your home (i.e., your loan balance is 80% or less of your home’s original appraised value), you can request your lender to cancel PMI.
  2. Home Appreciation: If your home has increased in value, you might reach 20% equity sooner than expected. In this case, you can request a new appraisal (at your expense). If the appraisal shows that your loan balance is 80% or less of the new, higher home value, you can ask your lender to cancel the PMI.
  3. Refinancing: If interest rates are favorable, refinancing your mortgage might be a good option. When you refinance, the new loan is based on your home’s current value. If this value has increased, or if you’ve paid down a significant portion of your original loan, your new loan might not require PMI.
  4. Automatic Termination: By law, lenders are required to automatically terminate PMI when your mortgage balance reaches 78% of the original value of your home, assuming you’re current on your payments. This is based on the original payment schedule; additional payments to accelerate equity won’t affect this date.
  5. Make Home Improvements: Increasing the value of your home through renovations or major improvements might help you gain enough equity to cancel PMI. Like with home appreciation, you would need an appraisal to verify the increased value.
  6. Loan Modification: In some cases, modifying your loan terms might help eliminate PMI. However, this is less common and typically requires a significant change in your loan’s structure.

Important Considerations

  • Request in Writing: Any request to cancel PMI should be made in writing to your lender.
  • Good Payment History: You’ll need a good payment history, with no late payments in the past year or so, to qualify for PMI cancellation.
  • No Other Liens: You must not have any other liens on the property (like a second mortgage).
  • Additional Appraisal: Be prepared to pay for an appraisal if you’re using increased home value as your reason for PMI cancellation.

Remember, rules can vary slightly depending on your specific loan agreement and the policies of your lender, so it’s always a good idea to consult with them directly or seek advice from a financial advisor.

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