PMI is typically required on most mortgages. But how much is it costing the borrower per month? What are the steps that borrowers can take to get rid of this additional expense each month? Below is additional information on PMI and what you should be looking at today!
What is PMI?
PMI is also known as Private Mortgage Insurance. It is added to individuals mortgage payment as protection for Lender’s in the event that the borrower defaults on their primary mortgage or the home goes into foreclosure. PMI is usually required if you have a conventional loan or if you make less than a 20% down payment.
How do I get rid of my PMI?
It is not a simple process to get rid of your PMI, but it is doable. One way is pay off 80% of your mortgage. For example, if you have a home that you paid $300,000 for, you must pay $240,000 to have your PMI eliminated from your monthly mortgage payment. PMI can be relatively expensive. More borrowers will pay an additional $115+ on their monthly mortgage and that is someone who has fair credit. That is over $1,000 a year!
If I refinance, can I get rid of my PMI?
If you are planning on refinancing your mortgage to get a lower interest rate, you may have the ability to also have your PMI removed. If your new mortgage is 80% or less of the homes current appraised value, you may have the option to remove PMI. This could save you hundreds per month! Through this process, you more than likely need to have your house appraised. Refinancing is typically the only way to get rid of PMI on government backed loans, such as FHA loans.
Is there anything else I need to be proactive about to get rid of my PMI sooner?
Yes – there are different steps you can take to make sure your PMI falls off ASAP. Make sure to keep track of your payments and where your principal balance is compared to the value of the home. Once you reach 80% paid off, be proactive with your lender and get everything in writing!
One thing is for you, make sure you have a good payment history. Typically, the rule is no payments 30 days late in the last 12 months and no 60 day late payments in the previous 24 months. Late payments could put you in high risk therefore causing your PMI to stay on longer.
Having other liens on the property could cause problems when looking to get rid of PMI. Your mortgage must be the home’s only debt, including a second mortgage, home equity loans and lines of credit.
An appraisal is also very important in this process because this will help prove the home’s value hasn’t fallen. Check to see if you lender accepts a brokers price opinion instead.
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