Goodbye PMI: Getting Rid of Your Private Mortgage Insurance
Private mortgage insurance (PMI) helped you buy your house when you didn’t have enough for a down payment.
But now that extra fee on top of your mortgage is driving you crazy. So how do you get rid of it? Unfortunately it’s going to take time or money, but the good news is that your PMI won’t be with you forever.
There are a couple of times during the life of your loan when your PMI can disappear.
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80 percent LTV
When your Loan-to-Value Ratio (LTV) gets to 80 percent, you can ask your bank to drop your PMI.
At this point, it’s not guaranteed, but it’s worth it to ask. If keeping track of that type of thing isn’t exactly your forte, don’t worry. Your insurance company has to send you a notice when your loan is at this point.
So, what are your responsibilities? You’ll have to give your insurance company:
- A written request
- Proof of your good payment history
- Proof that you’re current on your payments
- Proof your home isn’t worth less than when you bought it, usually through an appraisal
- Proof your home doesn’t have a second mortgage or any other subordinate lien
78 percent LTV
Thanks to the Homeowner's Protection Act of 1998, your insurance company has to tell you when your LTV is scheduled to reach 78 percent and automatically drop your PMI on that date.
The good part about the law is you know you won’t be paying PMI forever. But the downside is it’s based on when your loan is scheduled to get to 78 percent, not when it actually does. So if you’re making extra payments to payoff your mortgage sooner, you’re going to have to ask your insurer to drop your PMI.
Apply at 80 percent LTV
The Homeowner’s Protection Act also provides that borrowers can apply to have PMI dropped from their payment when the balance of the loan is equal to 80 percent or less of the original value of the home.
If you believe your home has risen in value, giving you more equity than expected, you can pay for another appraisal and see if your lender will use that to determine your LTV.
In an effort to build equity faster, you may try to overpay your mortgage every month; even a small amount can make a difference.
Mid-point on the loan
Halfway through your loan’s term (15 years on a 30 year mortgage) your insurance company has to drop your PMI, even if your LTV isn’t at 78 percent.
That might be the case if your loan had an interest-only period or if you got a principal forbearance.
If interest rates are favorable, and you’ve built enough equity in your home, you can also just refinance—with your current lender or a new one.
If your new mortgage has an LTV of no more than 80 percent, your lender won’t add PMI to the loan.
Whatever you do, keep an eye on that PMI, and your LVR. The sooner you quit paying, that extra money every month, the better!