7 Ways to Cancel Your P.M.I. (Private Mortgage Insurance) (2024)
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Did you know that many people are paying a monthly payment of anywhere between $50 – $400+ per month for insurance that doesn’t even benefit them? Yep, it’s called private mortgage insurance or PMI. This insurance benefits your lending institution if you default on your loan. If you have bought a home and put less than 20% down on the home, you are most likely paying PMI. PMI is wrapped up in your mortgage payment so many people don’t even realize they are paying it.
But if you are paying for PMI there is good news and bad news.
The bad news is that PMI is required for those who don’t put 20% down on their home when they purchase it.
The good news is that the bank is required to stop charging you in certain circ*mstances.
First, if you have paid down your mortgage to 80% of the original loan, you can call your lending institution and request that the PMI be canceled.
Second, if you haven’t paid your mortgage down to 80% but have done improvements to your home that increased the value, you can have your home appraised. If the amount remaining on your mortgage x 1.25 is less than the new appraised value of your home, you can request that the PMI be canceled.
For example, say you owe $170,000 on your home and it just appraised for $220,000 due to a home remodel. Take $170,000 x 1.25= $212,500. $212,500 is less than the value of your home ($220,000) so you can request your PMI to be canceled.
Third, if prices have gone up in your area since you purchased your home, you can have your home appraised. If the amount remaining on your mortgage x 1.25 is less than the new appraised value of your home, you can request that the PMI be canceled.
For example, I bought a fixer-upper home (before and after photos here) for 40k more than the appraisal value (explanation of why here) and began paying PMI on the home loan. Then the market went up quite a bit just as we had completed our renovation. We had the home officially appraised by a certified appraiser and our equity went up to 70k. Our loan to new value was such that we were able to get our PMI removed.
Fourth, if you have paid for your loan for half of its time-frame/schedule (15 years on a 30 year loan), you can request that the PMI be canceled.
For example, say you have a balloon interest loan or a loan which is heavily front weighted in interest, you may have made payments for 15 years on a 30 year loan and not yet reached the 20% equity required to cancel PMI. Despite not owning 20% equity, once you hit the half way mark on the loan you can request PMI cancellation.
Fifth, start paying extra towards the principal and speed up the time frame you have until you own 20% equity in your home. I show in this post 3 secrets to save over $100,000 on your mortgage that banks don’t want you to know abouthow quickly gaining equity can happen by upping payments to principal.
Sixth, If you will end up being able to put down 20% on your new loan, you could try refinancing. Refinancing can be a costly decision. Before you refinance read my Pros and Cons of refinancing here.
Seventh, Wait until you have paid off 22% of your loan and your lender will automatically (as is required) terminate the PMI on your loan. Going this route will cost you months of PMI payments when you could technically request a cancellation once you have paid off 20% of your loan instead of 22%. So I really don’t recommend waiting till your lender automatically cancels.
Important Notes-
You must be current on your payments in order for PMI to cancel.
Your request to cancel in most cases must be in writing.
Your lender may request that you provide an appraisal. So contact your lender BEFORE paying for an appraisal and ask them what the process is to get an appraisal done that will be qualified to cancel your PMI.
With FHA loans you may have to have had the loan for at least 5 years and have paid down to 78% before they will remove the PMI. Although we had an FHA loan and it dropped with the appraisal within the first 6 months, rules are constantly changing. If you have an FHA loan ask your lender what the current rules are.
If you have a first and second mortgage and together your equity does not meet 20%, lenders are not required to drop the PMI.
The mandate to automatically remove PMI at 78% only affects new mortgages funded after July 1999. Fannie Mae and Freddie Mac have said they will apply this mandate to the older loans.
Canceling your PMI as soon as possible is a great way to put an extra $50-$400+ back into your pocket each month.
Another article or two that may be of interest:
3 Secrets to Save $102,533.35 on your mortgage that banks don’t want you to know about
Using this Simple and Free Excel file, you can calculate your real debt and determine the quickest and least expensive way to pay it off!
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To request cancellation of PMI, you should contact your loan servicer when the loan balance falls below 80 percent of your home's original value (the contract sales price or the appraised value of your home at the time it was purchased).
To request cancellation of PMI, you should contact your loan servicer when the loan balance falls below 80 percent of your home's original value (the contract sales price or the appraised value of your home at the time it was purchased).
You can request to have your PMI removed when you're scheduled to reach 80% LTV, but you can also take steps to build equity and reach 80% LTV more quickly. One of the most effective ways to do that is to make extra principal payments on your mortgage.
You can typically remove PMI if market conditions lead to a significant increase in your home's value. You have to make a request with your lender and order a new appraisal. The appraisal confirms your property value rose enough to where you own the required amount of equity.
Yes. You have the right to ask your servicer to cancel PMI on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. The first date you can make the request should appear on your PMI disclosure form, which you received along with your mortgage.
Dear (Servicer Name): I am requesting to cancel my private mortgage insurance. The coverage is with (Mortgage Insurance Company Name) and my mortgage loan number is (loan number). I have included documentation to support why I think the equity in my home has reached or exceeded 20%.
§ 4901. et seq., also known as the “PMI Cancellation Act,” was signed into law on July 29, 1998, became effective on July 29, 1999, and was amended on December 27, 2000, to provide technical corrections and clarification. The HPA addresses homeowners' difficulties in canceling private mortgage insurance (PMI) coverage.
Timely payments count when it comes to getting rid of PMI. Late payments can put you in a high-risk category, making canceling harder. No other liens. Your mortgage must be the home's only debt, including second mortgages, home equity loans and lines of credit.
The Bottom Line: Removing PMI Can Help Ease Your Financial Burden. Mortgage insurance gives many home buyers the option to pay a smaller amount upfront for their downpayment. However, it increases the monthly payment until you're able to remove it.
A borrower can request PMI be canceled when they've amassed 20 percent equity in the home and lived in it for several years. There are other ways to get rid of PMI ahead of schedule: refinancing, getting the home re-appraised (to see if it's increased in value), and paying down your principal faster.
To eliminate PMI, consider getting an appraisal at the halfway mark of your loan term, as different rules apply for canceling PMI depending on your mortgage company. Assessing your home's value through an appraisal is critical in PMI removal.
If you're current on your mortgage payments, PMI will automatically terminate on the date when your principal balance is scheduled to reach 78% of the original appraised value of your home. If you choose to use PMI, be sure to talk with your lender about these specific details of your policy.
For example, you could make one extra mortgage payment per year. Multiply your original home purchase price by 0.80 to determine the amount your mortgage balance needs to be to qualify for PMI cancellation.
Equity. One path to removing PMI from your mortgage without refinancing is to build up the equity in your home. In this case, your PMI can be automatically removed when you reach a certain amount of equity. Equity is calculated by subtracting the amount you owe on your mortgage from the appraised value of your home.
One way to avoid paying PMI is to make a down payment that is equal to at least one-fifth of the purchase price of the home; in mortgage-speak, that means the mortgage's loan-to-value (LTV) ratio is 80%. If your new home costs $180,000, for example, you would need to put down at least $36,000 to avoid paying PMI.
Is mortgage insurance tax-deductible? No, private mortgage insurance isn't tax-deductible now. The mortgage insurance deduction was only available for eligible homeowners for the 2018–2021 tax years.
Yes, a lender can refuse to remove PMI. For instance, if your property does not appraise as expected or you do not satisfy a requirement, a lender can reject your request. However, if you meet the requirements, you can request the removal of PMI.
You can save money by removing PMI sooner. When your mortgage balance reaches 80% of the original home value, you can ask the mortgage servicer to cancel PMI. The original value is the lesser of the price you paid for the home or the appraised value of the property when you bought it.
If the mortgage insurance was financed at the time of origination and is canceled prior to its maturity you may be entitled to a refund if the refundable option was chosen at the time of origination. However, if there was no refund/limited option, this would negate any option for a refund.
“After sufficient equity has built up on your property, refinancing from an FHA or conventional loan to a new conventional loan would eliminate MIP or PMI payments. This is possible as long as your LTV ratio is at 80% or less.”
Introduction: My name is Kerri Lueilwitz, I am a courageous, gentle, quaint, thankful, outstanding, brave, vast person who loves writing and wants to share my knowledge and understanding with you.
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