Private mortgage insurance (PMI) is a monthly fee added to your house payments and is designed to lessen the risk to the lender should you default on the loan. It’s usually required on mortgages if the down payment is less than 20% of the home’s value. PMI is typically $40-50 per month for every $100,000 borrowed.
As you make monthly payments on your mortgage, you are increasing the equity you have in your home. Once you have 20% equity, PMI is no longer necessary, and you can request to have it removed. This is considered “early cancellation.”
Once you have increased your equity a little more to reach 22%, you don’t even have to ask – PMI will be removed automatically.
If you have PMI added to your mortgage payments, you should consider canceling it as soon as you reach 20% equity. Why pay for something you don’t need? Even though you pay for PMI, it protects the lender, not you.
Options to remove PMI
1. Request early cancellation
When the mortgage balance of a loan is first scheduled to reach 80% of the home’s ORIGINAL value, the homeowner may request that the lender cancel their PMI. The borrower must have a good payment history on their mortgage loan, payments must be current, and there can be no subordinate liens against the home. An acceptable payment record is achieved when the loan is current when the termination is requested, has no payment 30 or more days past due in the last 12 months, and has no payment 60 or more days past due in the last 24 months. For modified loans, MI cancellation eligibility must comply with applicable law and investor guidelines (check with your servicer).
2. Let it cancel automatically
When the mortgage balance of a loan is first scheduled to reach 80% of the home’s ORIGINAL value, the homeowner may request that the lender cancel their PMI. The borrower must have a good payment history on their mortgage loan, payments must be current, and there can be no subordinate liens against the home.
3. If your home appreciated, you can cancel early
- If you have owned the home for at least
two years – you can request cancellation when you have 25% equity or more.
- If you have owned the home for over five years – you can request cancellation when you have 20% equity.
- If you have made property improvements that increased the property value and the loan is less than two years old, you can request cancellation.
When you are requesting mortgage insurance cancellation based on CURRENT property value, the servicer, most likely, will order an appraisal (at your expense) to determine the current value.
The above information is for borrower paid insurance that is paid monthly. This is for 1-unit principal residence/second homes. Contact your lender for more information regarding multi-unit properties or investment properties.
If you are unsure if you are eligible to have your PMI cancelled, you should contact your mortgage lender to discuss cancellation or inquire how much longer mortgage insurance will be required to remain on your loan.
If you are curious about the current value of your home, please give me a call and I can provide a Comparative Market Analysis (CMA) to give you an idea of what your home might be worth in today’s market. You may be able to remove PMI payments and reduce your monthly mortgage sooner than you think!