You can wait for PMI to cancel automatically, or you can request early cancellation, get a reappraisal or refinance the mortgage to get rid of it.
Discover effective strategies to eliminate PMI (private mortgage insurance) faster and save on mortgage expenses. Learn how you can take control of your mortgage and reduce your financial obligations through our comprehensive guide.
Table of Contents
If you have private mortgage insurance, youre probably looking forward to the day when it ends, sweetly reducing your mortgage payment.
Although you pay for PMI, the coverage protects the lender, not you, against the risk that you’ll stop making your mortgage payments. Nearly 18% of mortgages in the U.S. have PMI, and homeowners with PMI, on average, will make payments for 5 1/2 years before the insurance ends, according to U.S. Mortgage Insurers, a Washington, D.C.-based industry group.
Your mortgage servicer is required to cancel your PMI for free when your mortgage balance reaches 78% of the homes value, or the mortgage hits the halfway point of the loan term, such as the 15th year of a 30-year mortgage. You may be able to get rid of PMI earlier by asking the mortgage servicer, in writing, to drop PMI once your mortgage balance reaches 80% of the homes value at the time you bought it.
Heres a closer look at those options and two others for getting rid of PMI. These apply only to private mortgage insurance for conventional loans. The rules are different for mortgage insurance for government-backed mortgages, like FHA loans.
» MORE: What is mortgage insurance? How it works, when its required
1. Wait for automatic cancellation
Eventually, your mortgage insurance will fall away automatically, but it’s a good idea to keep track.
Request a written copy of your PMI cancellation schedule and your lenders requirements, advises Lindsey Johnson, president of U.S. Mortgage Insurers. Call the number on your monthly mortgage statement, long before you need it, she says. That way youll know when your payments are supposed to stop and can watch your progress.
» MORE: Calculate your PMI costs
2. Request PMI cancellation sooner
You can save money by acting to remove PMI sooner. “When your mortgage balance reaches 80% of your homes original value — the lesser of the sales price or the appraised price at origination — your mortgage servicer must cancel [PMI] at your written request,” says Marc Zinner, vice president of commercial operations at Genworth, one of the largest private mortgage insurance companies.
The percentage represents whats called your loan-to-value ratio. To find the LTV, divide the loan balance by the original purchase price or use NerdWallets loan-to-value calculator.
Check your PMI schedule, which is based on your homes original value, to track your progress. Make a written request to your lender several months before the mortgage is scheduled to hit 80% LTV and get the process moving.
Alternatively, use a mortgage amortization calculator to figure when you’ll hit 80% LTV. Youll reach the threshold earlier than scheduled if you make extra payments to reduce the principal balance.
To make the case for cancellation youll need:
-
A good payment history. The rule is no payments 30 days late in the past 12 months and no 60-day late payments in the previous 24 months. Timely payments count when it comes to getting rid of PMI. Late payments can put you in a high-risk category, making it harder to cancel.
-
No other liens. Your mortgage must be the homes only debt, including second mortgages, home equity loans and lines of credit.
-
Proof of value. A home appraisal, at your expense, to prove the homes value hasnt fallen. Certain lenders accept a broker price opinion instead.
» MORE: What is mortgage amortization?
3. Get a new appraisal
If property values are rising where you live, you can request early cancellation based on the homes current value. Your home may also have increased in value if youve done any home improvements, such as upgrading the kitchen or adding a bedroom. Youll probably need a new appraisal.
But before spending $300 to $500 on an appraiser, check your lenders rules. Some lenders require borrowers to use certain appraisers. Others accept a broker price opinion, a quicker process costing about half or less of an appraisers fee.
Heres a caveat: To cancel based on current value, you must have owned the home for at least two years and have 75% LTV. If you’ve owned the home for at least five years, you can cancel at 80% LTV.
» MORE: Learn how to strengthen your homes appraisal value
4. Refinance to get rid of PMI
If interest rates have dropped since you took out the mortgage, then you might consider refinancing to save money. Besides getting a lower rate, refinancing might also let you get rid of PMI if the new loan balance will be less than 80% of the homes value.
But refinancing will require paying closing costs, which can include myriad fees. Youll want to make sure refinancing wont cost you more than youll save. Use our refinance calculator to help decide whether its time to refinance.
Know your rights
Occasionally, borrowers and lenders knock heads over canceling PMI. If you run into insurmountable obstacles when trying to cancel, complain to the Consumer Financial Protection Bureau at 855-411-CFPB (2372).
Ray Rodriguez, a regional sales manager for TD Bank, based in Cherry Hill, New Jersey, says lenders vary in how they work with borrowers over canceling PMI. Think about mortgage insurance when getting a mortgage, he says. Tell the lender you need a copy of the loans PMI cancellation policies before youll sign the mortgage agreement.
“Its the lender or whoever is going to service this loan who will make the rules on this,” Rodriguez says. “Your lender should know their servicing policy right upfront. If they say ‘No or ‘If or ‘Maybe and you call two other lenders and they say, ‘Absolutely, we would do that for you, you can vote with your feet.”
A previous version of this article incorrectly stated the loan-to-value ratios and years of ownership required to cancel private mortgage insurance based on a new appraisal. This article has been corrected.
“When your mortgage balance reaches 80% of your homes original value … your mortgage servicer must cancel [PMI] at your written request.”
Marc Zinner, Vice president of commercial operations at GenworthThanks to Source
get rid of PMI
