What to do about PMI

by Tom Tousignant

in Blog, Home Buying, Mortgages, Refinancing

So, you have a mortgage with PMI, or Private Mortgage Insurance.  How can you get rid of it?  There are a few ways, and you find, you are actually better off paying PMI than the alternatives.

In general, if you have a mortgage loan with PMI, you have to pay it until you get to 20%-22% equity in your house.  A few years ago, it was simply a matter of buying a house, waiting two years, and then getting an updated appraisal to have your mortgage servicer drop the PMI.  Not so simple anymore.

For FHA loans, you will have to carry PMI for a minimum of 5 years after you get your loan.  When the loan balance gets to 78% of the original sales price or appraised value, the PMI will automatically drop off.  If you paid extra principal payments on your mortgage and got to 78%, and at least five years have elapsed since you closed on the home loan, you can call your servicer, and they will remove the PMI charge.

For Conventional Mortgage loans, you only need the PMI for two years, but the loan servicer will not drop the PMI until you ask.

It used to be that you could get an appraisal done on your house and use the appreciation to cancel the PMI.  Most lenders changed that rule a few years ago as the credit crisis hit, so on conventional mortgages, it is similar to the FHA program – pay your loan down and then the PMI can be removed.

Three other options if you have PMI both involve refinancing your current mortgage.

  1. If your house is still valued higher than you paid for it, you may be able to get a fresh appraisal and a new loan at 80% or less than the appraised value.  This new mortgage will not have PMI.
  2. If you have 10-15% equity in your house, you may be able to refinance with a new mortgage combo – get an 80% mortgage and add on an equity line to cover the amount above 80% of your home’s value.  Equity lines can be really tough to get, but there are still a few lenders that offer them.
  3. If you originally made a small down payment, say 0-5%, and now have more equity in your house, a refinancing to a new mortgage with more equity in your house will allow you to pay a lower PMI premium.  Combine the lower PMI premium with today’s lower interest rates, and this option may still save you money over time compared to your original PMI cost.

For the most part, people hate PMI.  However, don’t forget that PMI allows many people to buy a house and improve their quality of life years sooner than if they had to pay rent while saving for a 20% downpayment.  If you had to get PMI, dont’ regret that – just be aware of what you need to do to get rid of PMI.

If you need an updated amortization schedule, contact us, and we will create one for you free of charge.

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