If you’re paying for private mortgage insurance (PMI) on your home loan, you may qualify to remove it early. Since mortgage insurance only protects your loan servicer (the company you make your mortgage payments to) and not you, the sooner you can get rid of it and stop paying monthly premiums, the better. Here’s an overview of the options for removing mortgage insurance.
The basics of PMI cancellation
Your PMI will automatically be removed when your loan balance is scheduled to reach 78% of your home’s original value – your home’s sale price or its appraised value when you obtained your financing, whichever is lower. However, you can request to have your mortgage insurance removed early when you’re scheduled to reach 80% of your home’s original value. For example, if your home’s original value was $300,000, you could request PMI cancellation when your loan balance is scheduled to reach $240,000 (80%) rather than $234,000 (78%).
What you need to qualify for early PMI cancellation
- A conventional (non-government) mortgage with PMI (not a government mortgage such as an FHA loan)
- A good payment history (no payments 30-days late in the past 12 months and no 60-day late payments in the past 24 months)
- No other liens on the home (including second mortgages, home equity loans and lines of credit)
- Proof of your home’s value (ask your servicer for their rules – a specific home appraisal process may be required, or a real estate broker’s price opinion may suffice)
How to request early PMI cancellation
- Make a written request to your servicer for early PMI cancellation several months before your loan balance is scheduled to hit 80% of your home’s original value.
- Follow any further steps required from your lender.
- Enjoy the savings from your early PMI cancellation!
Additional PMI cancellation options
- In some situations, you may be allowed to use your home’s current value rather than its original value to determine when your PMI can be removed. This may be preferable if your home’s value has increased or you’ve made improvements to your home. Ask your servicer if they allow this option and what the requirements are.
- If you are interested in refinancing your mortgage, you may be able to remove PMI if your new loan’s balance is less than or equal to 80% of your home’s current value. Refinancing is also the only way to eliminate the similar mortgage insurance premiums (MIP) from an FHA loan.
With this knowledge, you may be able to cancel your mortgage insurance early and avoid paying unnecessary premiums. Get in touch anytime for advice about your mortgage strategy.