Learn How to Remove PMI Early to Save Money on Your Mortgage

If you’re a homeowner who has a conventional loan with less than a 20% down payment, you most likely have Private Mortgage Insurance (PMI). This is a type of insurance that protects a lender in case a borrower defaults on a loan. PMI adds an extra charge to your monthly mortgage payment. However, there’s good news for homeowners who want to remove PMI early. In this article, we’ll cover different ways to remove PMI early.

What is PMI?

PMI is insurance that lenders add to conventional mortgages for borrowers with less than a 20% down payment. PMI protects lenders if borrowers default on their mortgages. If you have PMI, you can expect to pay about 0.5% to 1% of your loan amount each year. For example, if you have a $100,000 loan, you can expect to pay $500 to $1,000 a year for PMI.

How to remove PMI early

PMI does have its benefits. It allows borrowers to get into a home with a low down payment. However, once a borrower has 20% equity in their home, there’s no need for lenders to continue the insurance. Here are ways to remove PMI early:

1. Make extra mortgage payments

You can make extra payments on your mortgage. This speeds up the time it takes to reach 20% equity in your home. The more you owe your lender, the more interest you’ll pay. Making extra payments reduces your balance and helps you reach the 20% equity mark faster.

2. Refinance your mortgage

Another way to remove PMI early is to refinance your mortgage. If you’ve built up some equity in your home, it’s possible to refinance to a new loan without PMI. However, refinancing comes with costs, and you need to ensure it’s worth the expense.

3. Get your home appraised

You can remove PMI early by getting your home appraised. If you’ve made significant improvements to your house, which increases the market value, you can use that information to get rid of PMI earlier. Once your home value increases, you can have an appraiser assess the new value and submit that information to your lender.

4. Pay for an appraisal

If your lender doesn’t agree to remove PMI based on your home value, you can pay for an appraisal. The appraisal can show that you’ve reached 20% equity, which justifies having PMI removed. Be aware that paying for an appraisal can be costly, so make sure it’s worth the expense.

5. Ask for PMI removal

Many lenders will allow homeowners to ask for PMI removal. This request often comes after homeowners reach 20% equity in their home. You can contact your lender and ask about PMI removal. Your lender will tell you the requirements for PMI removal and the necessary steps to take.

Benefits of removing PMI early

Removing PMI early can save you a considerable amount of money. Here are the benefits of removing PMI early:

1. Lower monthly payments

Removing PMI early can lower your monthly payments. Once you reach 20% equity in your home, you’re no longer required to pay PMI. Your monthly mortgage payment will decrease significantly. The amount you save will depend on the size of your loan and the interest rate.

2. Reduce your interest rate

Removing PMI early can reduce your interest rate. Without PMI, your loan-to-value ratio decreases. This ratio is the amount of your mortgage divided by the value of your home. A lower loan-to-value ratio means less risk for lenders, which can translate to a lower interest rate for borrowers.

3. Increase home equity

Removing PMI early can help you build equity faster. With a lower monthly payment and a potential lower interest rate, you can increase your home equity faster. Home equity is an asset that can help you in many ways, including borrowing against it, selling your home, or improving your credit score.

Conclusion

Private Mortgage Insurance (PMI) is an extra charge that adds to your monthly mortgage payment. However, there are ways to remove PMI early. Removing PMI early can save you money, reduce your interest rate, and increase your home equity. You can remove PMI early by making extra mortgage payments, refinancing your mortgage, getting your home appraised, paying for an appraisal, or asking for PMI removal from your lender.

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