Private mortgage insurance or PMI is the insurance on the home loan you borrow. This insurance is not for your protection. It protects the lender from monetary damage if the borrower stops making monthly repayments midway.
Private mortgage insurance (PMI) requires you to pay an extra amount, which can be a little over $2,000 annually or almost $200 per month. The added cost can be eliminated if you remove PMI from your mortgage. There are several ways this can be made possible.
PMI is not applicable all the time. Lenders generally put PMI on a mortgage when borrowers make less than 20% of the home’s down payment.
If you look at it statistically, the average cost of homes in the US is approximately $428,700. And the average percentage of PMI ranges from 0.22% to 2.25%, depending on the down payment made. Let’s say it’s 1%, which means you’ll have to pay an extra $4287 every month, which is a considerable amount, to say the least.
Private mortgage insurance (PMI) requires you to pay an extra amount, which can be a little over $2,000 annually or almost $200 per month. The added cost can be eliminated if you remove PMI from your mortgage. There are several ways this can be made possible.
Opt For Automatic Termination
When you keep making regular payments without missing deadlines till you own at least 20% of the home’s equity, the lender might drop the PMI automatically.
Another option is to reach the mid-way point. The PMI will be automatically terminated if you get to the mid-way point of the payment plan (without missing payments).
Request For Cancellation
The second tactic is to request cancellation when the mortgage balance is down to 80%. In most cases, lenders accept the request if you’re diligent in your payments.
If you have some extra cash, consider increasing the amount you pay each month, so you own 20% of the home’s equity as soon as possible. The quicker your mortgage balance reaches 80%, the faster you can apply for PMI cancellation.
Refinance When Home Value Increases
If you made 10% of the down payment, however, your home’s value increases by 15% a few years down the road. In this case, you can refinance your home loan because your remaining balance will now be below 80%. As a result, no PMI will be applicable, allowing you to save twice as much.
Final Notes
Private mortgage insurance protects lenders from bearing a financial loss. However, if you initially make a 20% down payment, it won’t be applicable. Still, if you get stuck with PMI, you can opt for either one of the methods discussed above to eliminate it from your monthly repayment plan.