Paying Private Mortgage Insurance? You Might be Able to Cancel It and Save Big Money
Private Mortgage Insurance, or PMI, is added to mortgage payments when your original loan balance is more than 80 percent of your home’s value. In other words, you put down less than 20 percent when you purchased or you didn’t have sufficient equity during a refinance. The premium protects lenders in the event you default on the loan.
PMI is automatically cancelled when you reach 78 percent of your original loan-to-value. Many, however, do not know that you can ask for PMI to be cancelled before this happens. This process starts with a call to the company who services your loan, who at your request, will order an appraisal. If the report comes back with 80 percent loan-to-value or better, PMI can be cancelled at that time (you must be current on your payments and not have had a recent delinquency). The cost will likely run between $300-500, which is a small price to pay considering PMI can cost into the hundreds of dollars monthly.
There are a few things to note. First, the appraisal fee is non-refundable, and there is no guarantee that you have sufficient equity for PMI to be cancelled. With that being said, home values have soared in the last several years and some are unwittingly paying this fee unnecessarily. If you are in question about your property’s value, you can get a free estimate by providing a few small details. Note, though, this is only an estimate to give you an idea of where you currently stand, and to determine if you want to move forward with a formal request. It is not binding on a lender and an appraisal will still be required.
If you have been paying PMI for an extended period, you might be close to its automatic cancellation. Contact your lender to determine when you will reach this the 78 percent threshold.
Lastly, this unfortunately does not apply if you used an FHA loan. FHA charges a mortgage insurance premium, or MIP, which serves a similar function as PMI. You might be able to get rid of MIP but for this to happen there are a couple qualifications:
- If you opened a loan between January 1, 2001, and June 2, 2013, your MIP will go away once you reach an LTV of 78%.
- If you opened a loan on or after June 3, 2013, and your original down payment was 10% or more, your MIP will go away after 11 years.
If you don’t meet these conditions for an FHA loan, mortgage insurance will be required for the life of your loan and you will need to refinance in order to remove it.