Private Mortgage Insurance (PMI) is a common financial hurdle for many homeowners. Typically the purpose of PMI is to protect lenders in case of default, but it can be a significant financial burden for borrowers.
Fortunately, there are several strategies to rid yourself of PMI insurance and save money in the long run. It's good to note that PMI can only be removed on Conventional loans. If you have an FHA loan, a refinance is required.
In this blog post, we'll explore some effective ways to eliminate PMI and free up your finances.*
Reaching the 20% Equity Threshold:
The most straightforward way to get rid of PMI is to reach 20% equity in your home. Once your loan-to-value ratio (LTV) drops below 80%, you can request the removal of PMI. Pay attention to your mortgage payments and look out for any increase in your home's value to accelerate the process.
Make Extra Payments:
Speeding up your mortgage payments can help you reach the 20% equity threshold sooner. Consider making additional principal payments whenever possible. This not only reduces your outstanding balance but also shortens the overall duration of your mortgage.
Home Improvements and Appreciation:
Increasing your home's value through renovations or market appreciation can be an effective way to eliminate PMI. Keep an eye on the real estate market trends and consider improvements that can boost your home's appraisal value.
Refinancing Your Mortgage:
Refinancing your mortgage may be a viable option if interest rates have dropped since you first obtained your loan or if your credit score has significantly improved. By refinancing, you might secure a new loan with a lower LTV ratio, allowing you to remove PMI.
If you believe your home has appreciated substantially, you can request a new appraisal. If the appraisal indicates that your LTV is below 80%, your lender may consider removing PMI.
Note: your lender is the one with the ability to get an appraisal done for you. Members cannot get an appraisal themselves. Consider speaking to your lender to find out more about this strategy.
Some loans have an automatic termination clause for PMI once you reach the midway point of your loan term. Familiarize yourself with your mortgage agreement to see if this applies to your situation.
Negotiate with Your Lender:
Don't hesitate to communicate with your lender. If you have a good payment history and your home's value has increased, your lender may be willing to work with you to eliminate PMI.
*While we're here to share general information that can help improve our Member’s financial lives, we are not a financial advisors and we recommend strongly you contact your personal advisor for further advice.