PMI (Private Mortgage Insurance) is a type of protection put in place for mortgage lenders. If you borrow a conventional loan and put down less than 20%, you may have to pay PMI. Often, first-time homeowners do not have the financial means to make a large down payment, so they end up paying PMI. But don’t worry; PMI isn’t forever. There are ways you can get rid of it. Below, we’ve discussed the matter in detail.
What Does PMI Do?
PMI (private mortgage insurance) is a type of insurance that protects your mortgage provider. Lenders require it when borrowers cannot put down the full 20% on their conventional loan. This is because these borrowers are deemed to be slightly higher risk. If the borrower defaults, the insurance protects the lender.
As a borrower, you’ll pay for PMI each month with your mortgage payment. The monthly amount gets tacked onto your mortgage. It’s important to note that PMI is different from other types of insurance such as Mortgage Protection Insurance and Homeowners Insurance.
How to Get Rid of PMI
Most borrowers aren’t exactly thrilled by the thought of paying PMI. After all, who wants to pay more than what’s absolutely necessary? But if you can’t come up with enough funds to put 20% down, you may be stuck with it, at least temporarily. The good news is, there are ways you can get rid of it such as:
Request to Have It Removed
Once you’ve reached 20% equity in your home, you can request to have your PMI removed. If you pay over on your principal each month, you may be able to reach this point faster. You could also choose to apply a lump sum to your principal each year or make an extra mortgage payment.
Automatic Removal
Lenders are required to remove PMI when the borrower’s loan balance reaches 78%. Servicers must also stop PMI at the halfway point of the amortization schedule.
Reappraisal
If your property’s value has gone up significantly since you purchased it, you could possibly have your home reappraised to get rid of your PMI. Getting your home appraised will cost you some money, but you’ll have a new official valuation that’s reflective of your home’s current market value.
If you’ve owned your house for at least five years and your loan balance is less than 80% of the new valuation, you could contact your lender and request to have your PMI approved. You can also go this route if you’ve lived in your house for at least two years and your loan balance is less than 75% of the new valuation.
Have Questions About PMI?
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