In case you’re not aware of what PMI is, I recommend taking a look at our article on “What is PMI” linked here:
As a quick refresher, mortgage insurance is insurance that is required by your lender in order to protect them in case you fail to make payments on your mortgage. Now let’s look at the best options to remove PMI to help you save on your monthly mortgage payments
Once you’ve paid off 20% of your mortgage and have a balance of 80% of the original purchase price, you can reach out to your lender and request that they terminate your PMI. If you choose not to reach out, once you’ve paid off 22% of your mortgage and the balance reaches 78% of the original purchase price, the lender is required to automatically terminate their PMI. As long as you are in good standing and haven’t missed any payments, there will be no issues.Another way to have PMI removed is halfway through your amortization schedule. If you have a 30 year loan term, then it must be automatically removed after 15 years of payments.
If you initially locked in a higher interest rate than where the current market rates are at, refinancing can essentially kill two birds with one stone for you. You can save on interest and reduce your payment while also enabling you to eliminate PMI if your new balance falls below 80% of the home’s value. This works best when your home has gained significant value. If you currently have an FHA loan and want to get rid of your mortgage insurance, refinancing to a conventional loan is also a great option since you’re stuck paying mortgage insurance for the entirety of an FHA loan. Make sure you check in with us to see how quickly you can refinance your home since most lenders typically have seasoning requirements from 6 months to 2 years before you can refinance. You can also talk to us to discuss when might be the best time to refinance depending on the market conditions.
In an active real estate market, your home equity can reach 20% ahead of your payment schedule. If you think it might be worth more, you can order a new appraisal. As long as you’ve owned the home for more than 5 years and see that your loan balance is at 80% after the new valuation, you can request from the lender to have the PMI canceled. If you want to do this sooner, you would need to own the home for at least 2 years and ensure that your balance is no more than 75% of the new valuation.This pertains to you If you’re living in a neighborhood where home values are shooting up like fireworks on the 4th of July. Increased values in homes nearby will help increase the value of your home.
Another situation where your home value can increase quickly is if you’ve made renovations that can increase the value of your home. These include: replacing your windows, an upgraded kitchen, adding extra rooms and many other improvements.