Get Rid of Private Mortgage Insurance & Lower Monthly Mortgage Costs

For most people, their monthly mortgage payment is a big financial burden. It covers the principal amount, interest, and escrow payments. There is another amount called PMI or Private Mortgage Insurance that is dependent on the loan-to-value or LTV and the outstanding loan. It helps you buy a home, especially if you are a first-time homebuyer without making a huge down payment. However, in the long run, it is an expensive proposition. 

You can use a monthly mortgage calculator to calculate the PMI that you will need to pay on your mortgage each month. When you add up the monthly PMI amount for the next five years, you will find that you could have saved a bit if the PMI did not exist. For example, if you purchase a home valued at $300,000 with a $10,000 down payment, you may need to pay $277 every month as a PMI payment. In the next five years, the total PMI amount will reach $16,620.

The good part is that you can get rid of private mortgage insurance. And, this is a strategy that you can work on beforehand to plan your PMI exit at the earliest.

What is Private Mortgage Insurance?

Private Mortgage Insurance, or PMI, is a form of protection for the lender in the event you fail to clear your outstanding mortgage payments. It is, therefore, included as a part of your monthly mortgage payment. PMI is required when more than 80% of the house's appraised value is financed. However, if you make a down payment of 20% or more, PMI will usually not apply to you.

Ways To Get Rid Of Private Mortgage Insurance

Some of the most popular ways to get rid of private insurance on a mortgage are as follows - 

1.Get rid of mortgage insurance, FHA

FHA loans are targeted towards riskier borrowers. Consequently, the PMI is designed in a way that the borrower has to bear the PMI for the entire loan duration, irrespective of the equity built. So, if you are a well-qualified borrower and want a low down payment option, go for a conventional loan. The distinct advantage is that you can pay down as little as 3%, but once you build a credible equity, like 22% of the mortgage amount, the PMI can be cancelled.

2.Pay an additional mortgage payment each month

This is one of the most common methods of increasing your equity in your home, way faster than standard monthly payments. Remember, all extra payments are used in clearing the principal. This way, you save on the interest amount on the additional mortgage amount. When you have paid almost 78% to 80% of the house’s value, you can request the bank to cancel the PMI.

In other words, the faster you pay off your debt, the faster you have the choice to clear off your PMI payments.

3.Mortgage refinance

Another way to get rid of my mortgage insurance is to Refinance your home loan, especially when its value has gone up from the time you bought it. It is a good idea to keep a track of the prices of homes in your neighborhood and do a comparative study of the mortgage rates offered by different lenders. For example, if the home cost you $300,000 when you bought it and is now valued at $400,000, then you have an additional home equity of $100,000. If you have already paid more than 20% of the home’s new appraised value, you are eligible for refinancing, especially a new loan minus PMI.

One thing to take care of in this case - the new rate of interest should not be too high.

4.Letting PMI cancel off automatically 

This is another way to get rid of private insurance, especially in conventional loans. This, of course, means that you go on patiently paying your monthly instalments till the lender has it removed, on their own. Since you have taken a loan that is more than 80% of the value of the property, your repayment gradually leads to the outstanding amount falling below 80% of the value. When it happens, the lender needs to cancel off the PMI charges automatically. Ensure that you are paying on time. 

5.Requesting PMI charges removal when your equity grows

This is another popular method of getting your PMI charges cancelled. As soon as your homeowner’s equity grows to above 20% of your property, you can request the lender to remove the PMI charges. Equity builds up when you make regular repayments on time, as well as when there’s an appreciation in property value.

To get rid of Private Mortgage Insurance (PMI), use any of the methods mentioned above. A bit of planning and discipline can help you save thousands every year. Connect with Total Mortgage to explore your options and find the best strategy to save more over the life of your loan.

FAQs

1. Can I get rid of private mortgage insurance?

Yes, you can get the Private Mortgage Insurance charges removed from your monthly installment payments. There are different ways to do so, especially, if you want to remove the charges faster.

2. How to get rid of my private mortgage insurance?

There are different ways to do so. You can request the lender to remove the charges when your equity is more than 20% in the house. You can keep paying the monthly mortgage till it reaches a point where the charges are canceled automatically. Instead of an FHA loan, you can go for conventional home loans, provided your credit score is healthy. You can pay an additional amount towards your mortgage every month to reach the point where the PMI charges are canceled automatically. Or, you take advantage of rising home prices and re-finance your mortgage. 

3. Is PMI different for different types of loans?

Yes. In the case of conventional loans, PMI charges apply if more than 80% of the home’s appraised value is financed. In this case, you are not required to pay the charges forever. Once your outstanding amount goes below 80%, the PMI charges are automatically canceled. In case of FHA loans, however, there’s a mortgage insurance premium or MIP that you will need to pay for the entire duration of the loan unless your downpayment is 10% of the home’s value or more and/or you keep making the payments for up to 11 years. In the case of VA and USDA loans, PMI charges do not apply. 

Note- in the case of USDA loans, a monthly fee is collected towards the annual guarantee fee.

4. How is PMI calculated?

The PMI charges are between 0.1% and 2% of the mortgage amount. For a loan of $270,000, your PMI charges could be almost $5,400 yearly or $450 approximately every month, on the higher end, and about $270 yearly or $20 almost each month. 

5. What factors affect PMI charges?

Factors like your credit score, debt-to-income ratio, the appraised value of the home and the amount you finance affect PMI charges.