Learn How to Remove PMI Without Refinancing and Save Money

Are you tired of paying Private Mortgage Insurance (PMI) on your home loan every month? PMI is a type of insurance that protects the lender if the borrower defaults on the loan. Although it can make it easier to qualify for a loan, the monthly premium can add up to hundreds of dollars and can become a financial burden for homeowners. Fortunately, there are different methods to remove PMI without refinancing, which can save you a significant amount of money in the long run.

Understand PMI and Your Loan

Before exploring how to remove PMI, it is essential to understand how it works and why it exists. PMI is typically required on conventional loans when the borrower does not have a 20% down payment. It can also be required on FHA, USDA, and VA loans. If you are unsure if you have PMI on your loan, check your monthly mortgage statement or contact your lender.

When you pay PMI on your loan, the premium is calculated as a percentage of your loan amount. The rate can vary depending on the size of your down payment and your credit score. PMI should automatically cancel on your loan when you reach a loan-to-value (LTV) ratio of 78%, which means you have paid off 22% of your original loan amount. However, some loans may have different requirements, so check with your lender.

Make Extra Mortgage Payments

If you want to remove PMI from your loan faster, making extra mortgage principal payments can help. When you pay down your loan balance quicker, you will reach the 78% LTV ratio faster, which can lead to PMI cancellation. For example, if you have a $200,000 loan with a PMI rate of 0.5%, your monthly PMI payment would be around $83.33. If you were to make an extra principal payment of $100 per month, you could potentially remove PMI in less than five years and save over $4,000 on PMI premiums.

Request a PMI Removal

If you have made significant payments towards your loan or your home has appreciated in value, you may be eligible to request a PMI removal. You can contact your lender and request to have the PMI removed once you have reached the 80% LTV ratio. The lender may require a formal appraisal of the property to confirm its value has not decreased, and you may need to pay for this service. If your appraisal confirms the home’s value has increased, you may be able to drop the PMI and save money on your monthly payment.

Automatic PMI Termination

As previously mentioned, some loans have different requirements for PMI cancellation. For example, loans that originated after July 29, 1999, are subject to automatic PMI termination regulations. This means that your lender is required to terminate your PMI once you reach the halfway point of your loan term. So if you have a 30-year mortgage, you can request PMI removal once you have paid 15 years of payments. However, you must be current on your mortgage payments to be eligible for this option.

Refinancing Your Mortgage

If none of the methods above work for you, refinancing your mortgage may be another option to consider. Refinancing involves taking out a new loan to pay off your existing mortgage, and it can also be an opportunity to remove PMI from your loan. When you refinance, you can choose to do a cash-out refinance or a rate-and-term refinance. A cash-out refinance allows you to take out extra cash, and the amount you save on PMI may not justify the added cost of the higher interest rate and fees. A rate-and-term refinance does not let you take out extra cash, but it can lower your monthly payment and save you money on PMI premiums.

Conclusion

PMI can be a significant expense for homeowners, but there are multiple ways you can remove it without refinancing. Making extra principal payments, requesting PMI removal, and taking advantage of automatic PMI termination are all viable options. Refinancing your mortgage is also an option, but it is not always the best choice for everyone. Before taking any action, consult with your lender and a financial advisor to determine which option is best for your specific situation. By removing PMI, you can save money and potentially pay off your mortgage faster.

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *