If you have PMI (private mortgage insurance), you likely anticipate the day when you no longer have to make that monthly payment on top of your mortgage and tax payments. The good news is you can make that day get here faster if you follow some of our tips below.
PMI – What’s It For?
The thing most people do not like about PMI is that you must pay it, but it is not for your benefit. It protects the lender who gave you the mortgage. If you stop making payments on your home, the mortgage insurance protects the lender and pays them back part of what is owed.
You are one of millions of people who pay PMI every year. It is estimated that at least 15% of mortgages in the US have PMI. It takes approximately an average of 5.5 years of payments before the typical homeowner can cancel PMI.
But PMI can be gotten out of in many cases. It is the only type of mortgage insurance that can be cancelled, for the most part. VA loans have mortgage funding fees that cannot be canceled. FHA financing also have mortgage insurance that is permanent in many cases with loans issued after June 2013. The only way to get out of mortgage insurance for most holders of FHA mortgages today is to refinance into a conventional loan.
If you have PMI, here are several ways to get rid of that pesky insurance payment each month:
Wait for It to Cancel
If you have a conventional mortgage with less than 20% down payment, your PMI will eventually be cancelled by your lender automatically. This is done in one of two ways:
- The loan reaches a 78% loan to value. According to the federal Homeowners Protection Act of 1998, lenders must terminate PMI when the homeowner reaches that LTV. To determine your LTV, you just divide the balance of the loan by the original purchase price.
- Your mortgage hits the 50% mark. No matter your LTV, the lender must end your PMI when you are halfway through your payments. This means year 15 if your mortgage is 30 years. This might happen before you reach 78% LTV if the mortgage has a balloon payment or a period of interest only payments.
We advise getting a written copy of your PMI cancellation schedule; that way you know far in advance when your PMI payments are supposed to stop.
Request PMI Cancellation
When your home reaches 80% LTV, your lender must remove PMI if you request it in writing. We recommend making your written request several months before your loan reaches 80% LTV. To make a strong case to get PMI cancelled ahead of schedule, you should show the lender the following:
- A strong payment history. You should have no 30-day late payments in the previous year. You also should not have any 60-day late payments in the last two years. Timely payments are very important to drop PMI.
- No liens other than first mortgage. Your first mortgage must be the only debt on the home, including second mortgages.
- Proof of home value. If you pay for an appraisal, you can prove the value of the home has not gone down.
Order a New Appraisal
Home values are rising across America in 2018. The economy is strong, and many people are seeing double digit appreciation on their home values. If this is happening in your region, you might ask to cancel PMI based upon your home’s value. This will usually necessitate a new home appraisal. Before you spend up to $500 on a new appraisal, you should consult with your lender. Certain lenders only accept appraisals from certain appraisers. Others might accept a broker’s price opinion or BPO. This costs half as much as an appraisal.
Increase Value with Improvements
Depending upon your area, you could increase the value with a smart remodeling project. A reasonable kitchen upgrade or outside upgrades such as windows or siding can provide a nice boost in home value. It could be enough to put you over the top and get rid of PMI. Remember to not overspend on any upgrade. This means you should not upgrade a room in the home well beyond what others are doing in your neighborhood. Or, you will not recover that extra money you spent.
Sell the Home
If nothing else works, you can always sell the property to dump PMI. But this is a last resort.
Bottom Line on Removing PMI in 2018
It is common for the homeowner and lender to argue over canceling private mortgage insurance. If you are finding your lender is being difficult about cancelling PMI, you can talk to the Consumer Financial Protection Bureau at 855-411-2372. Make a complaint if you feel the lender is not agreeing to cancel your PMI when they should.