Are you dealing with the added cost of private mortgage insurance (PMI) right now? If that’s the case, you’re likely looking forward to the day when you can say goodbye to it and have your monthly mortgage payment reduced.
Private mortgage insurance can create a notable financial burden. However, keep calm since there are actionable measures to speed up its removal.
It’s crucial to recognize that PMI primarily safeguards the lender, not the homeowner, against the risk of mortgage payment defaults.
While PMI may be a requirement for mortgages with down payments less than 20%, seeking ways to expedite its elimination is a natural response to alleviate financial strain.
In addition to waiting for automatic PMI cancellation when your mortgage balance reaches 78% of the home’s value or the halfway point of the loan term, you can be proactive in pursuing its elimination.
Let’s explore these options and two additional methods to eliminate PMI.
Understanding the available avenues for PMI removal will allow you to make informed decisions. But most importantly, work towards achieving a more financially secure future.
1. Reach the LTV Threshold:
One of the most common and straightforward methods to remove private mortgage insurance (PMI) is to wait until your mortgage balance reaches 78% of your home’s original value.
This approach, known as “automatic termination,” is mandated by the Homeowners Protection Act (HPA) for most conventional loans.
As you make regular mortgage payments, your outstanding loan amount gradually decreases, while your home’s value may appreciate over time. Once your mortgage balance drops to 78% of the initial property value, the lender should automatically cancel PMI.
To ensure you’re on track for PMI removal, stay patient and keep track of your mortgage balance and home value.
Remember that the original value of your home is considered for determining the loan-to-value (LTV) ratio, not its current market value.
Be proactive in understanding your lender’s policies and the provisions of the Homeowners Protection Act.
By staying informed, you can take the necessary steps to secure PMI elimination as soon as you become eligible.
2. Request a New Appraisal:
Another proactive approach to expedite the removal of private mortgage insurance (PMI) is by requesting a new appraisal for your home.
If you believe your property’s value has significantly increased since you initially purchased it, obtaining a new appraisal could demonstrate a lower loan-to-value (LTV) ratio.
A reduced LTV ratio may push you past the required threshold for PMI removal, enabling you to qualify for its elimination sooner than anticipated.
Before requesting an appraisal, research the real estate market in your area to understand recent trends and property values.
Additionally, consider any home improvements or renovations you’ve made since your purchase. These upgrades can positively impact your home’s appraised value.
However, remember that the cost of a new appraisal typically falls on the homeowner. Therefore, it’s crucial to weigh the potential savings on PMI against the appraisal’s expense.
Once you receive the new appraisal and have verified that your LTV ratio qualifies for PMI removal, promptly contact your mortgage broker to initiate the cancellation process. By being proactive and staying informed about your home’s value, you can take advantage of a new appraisal to remove PMI and ease the financial strain it imposes.
3. Make Extra Principal Payments:
Another effective strategy to expedite the removal of private mortgage insurance (PMI) is making extra principal payments towards your mortgage.
By allocating additional funds toward the principal balance, you can reduce your loan amount more quickly, decreasing the loan-to-value (LTV) ratio.
As the LTV ratio reaches the required threshold for PMI removal, you can request its elimination from your mortgage servicer.
Consider increasing your monthly payments, making bi-weekly payments instead of monthly ones, or making lump-sum payments whenever possible.
Even small additional amounts can add up over time, helping you build equity in your home faster and reach the LTV ratio necessary for PMI removal sooner.
4. Refinance Your Mortgage:
By refinancing, you can replace your current mortgage with a new one that offers improved terms, potentially allowing you to remove PMI altogether.
During the refinancing process, two essential factors come into play: your home’s present value and the remaining loan balance.
If your home has appreciated significantly since your initial purchase or you’ve made substantial improvements, your property’s increased equity may lower the loan-to-value (LTV) ratio.
A reduced LTV ratio can be the key to eliminating the requirement for PMI.
Moreover, refinancing may offer the added benefit of securing a lower interest rate, which not only reduces your monthly mortgage payments but also facilitates faster equity growth.
To explore this option, start by assessing your home’s current market value and comparing it to your outstanding loan balance.
If the LTV ratio is below the threshold required for PMI, refinancing could be a favorable solution.
Keep in mind that refinancing involves additional costs, such as closing fees and potential prepayment penalties.
Therefore, it’s essential to carefully evaluate the financial benefits and weigh them against the expenses involved before deciding to refinance your mortgage.
Consult with mortgage lenders or loan officers to understand the refinancing options available to you and assess whether it aligns with your long-term financial goals. We can connect you to an expert!
If the numbers work in your favor, refinancing can provide an opportunity to remove PMI and potentially secure a more favorable interest rate or loan terms in the process.
5. Request PMI cancellation sooner
Requesting PMI cancellation sooner can be a smart financial move, leading to substantial savings.
When your mortgage balance reaches 80% of your home’s original value, you have the right to ask your mortgage servicer to cancel PMI, as mandated by the Homeowners Protection Act (HPA).
This percentage represents the loan-to-value (LTV) ratio, calculated by dividing the loan balance by the original purchase price.
To expedite PMI removal, stay informed about your home’s appraised value and mortgage balance, keeping a close eye on your progress toward reaching the 80% LTV threshold.
You can also utilize a mortgage amortization calculator to estimate when you’ll hit this target, especially if you make additional principal payments to reduce the outstanding balance.
→ Submit a written request:
Submitting a written request to your lender several months before reaching 80% LTV can kickstart the process.
This gives your lender time to review your payment history and ensure you meet the requirements for cancellation.
Timely payments are critical for PMI removal, as a history of late payments may jeopardize your chances of getting rid of PMI.
→ Good payment history:
Additionally, your mortgage must be the only debt on the property. Meaning no other liens, such as second mortgages or home equity loans. Providing proof of your home’s value through an appraisal, even at your expense, can further support your case for PMI removal.
By acting promptly and fulfilling the necessary criteria, you can free yourself from the burden of PMI and redirect those funds toward other financial goals. For example, saving for emergencies, investing, or paying down other debts.
Remember, PMI cancellation is your right as a homeowner. So, don’t hesitate to take the initiative to request it sooner rather than later.
6. Automatic Cancellation:
Another key aspect of private mortgage insurance (PMI) removal is the provision for automatic cancellation as mandated by the Homeowners Protection Act (HPA).
According to the HPA guidelines, your mortgage servicer is required to automatically terminate PMI when your mortgage balance reaches the halfway point of the loan term. Typically it is around the 15th year of a 30-year mortgage.
Automatic PMI cancellation gives homeowners a clear timeline for when they can expect to be free from this additional expense. It is essential to understand that this automatic cancellation is based on the original amortization schedule, regardless of the current value of your home or changes in the LTV ratio.
By leveraging this provision, you can plan your finances accordingly and look forward to when your mortgage payment will decrease without the added cost of PMI.
Automatic cancellation provides a clear path toward PMI removal, ensuring you can enjoy the financial benefits and peace of mind with reduced mortgage expenses in the latter half of your loan term.
Side note: When obtaining a conventional loan, buyers are required to have a PMI. On the other hand, buyers with an FHA loan must have a MIP (Mortgage Insurance Premium). Unlike PMI, the MIP cannot be canceled unless the person opts for an FHA loan with a down payment of 10% or more, which is not a common scenario.
Wondering about your best option to remove your private mortgage insurance?
If you’re burdened with private mortgage insurance (PMI), there are actionable measures you can take to expedite its removal and alleviate financial strain.
While waiting for automatic PMI cancellation when your mortgage balance reaches 78% of the home’s value, or the halfway point of the loan term is an option, you can also be proactive in pursuing its elimination.
Requesting a new appraisal, making extra principal payments, or refinancing your mortgage are effective strategies to lower the loan-to-value (LTV) ratio and qualify for PMI removal.
Additionally, requesting PMI cancellation sooner when your mortgage balance reaches 80% of your home’s original value is another smart financial move.
By staying informed and taking action, you can secure a more financially secure future, free from the burden of PMI, and redirect those funds toward other important financial goals.
Remember, exploring these options will empower you to make informed decisions about the best approach for your specific circumstances.
We can advise you based on your specific situation. Feel free to call us at (617)729-2967 or contact us here.