How and When You Can Drop Your Private Mortgage Insurance

Private mortgage insurance, or PMI, is charged by the lender in order to protect the lender in case the borrower defaults and stops paying the mortgage. The premiums are included in the monthly mortgage bill and the amount of the premium depends on the type and size of the loan, the down payment amount and the credit rating of the borrower.

 
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Eligibility to Drop PMI

Not everyone has to pay mortgage insurance, but most of those who have a down payment of less than 20% will have to carry it. Your mortgage insurance will eventually be removed without you doing anything as the lender legally has to terminate it when the balance of your loan is 78% of the original value of the home. If the homeowner is up to date on payments at that time, then the mortgage insurance will disappear. This option may take years and it is not based on the actual payments made but on the date the loan is scheduled to reach 78% based on the original amortization schedule, so if you pay off your mortgage faster, it will not reduce the insurance payment any quicker.

Pay Down Your Mortgage

A second option is to pay down your mortgage until it is at 80% of the home’s original value and ask the lender if they will cancel the insurance. They may say yes but then again they may say no, but it is always worth asking.

However, usually the borrower has to wait at least five years after taking out the loan before asking for cancellation, although in some cases it is only two years, and, as mentioned, the lender is within their rights to reject the request. To have a better chance of success you should have a good payment history with no late payments and have no second mortgage.

Your request must be in writing and your lender may ask you to provide an appraisal that the value of your property hasn’t declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel the insurance.

Refinancing

The easiest way to do away with mortgage insurance is quite simply to refinance the loan while ensuring that you have at least 20% of the current value of the home in equity. This will negate the need for any mortgage insurance at the beginning and may also have the secondary advantage of a better interest rate than that you are currently paying, so you may end up with lower monthly payments, or a shorter mortgage term as well as not having to pay mortgage insurance.

 

 

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