7 Ways to Cancel Your P.M.I. (Private Mortgage Insurance) (2024)
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Did you know that many people are paying a monthly payment of anywhere between $50 – $400+ per month for insurance that doesn’t even benefit them? Yep, it’s called private mortgage insurance or PMI. This insurance benefits your lending institution if you default on your loan. If you have bought a home and put less than 20% down on the home, you are most likely paying PMI. PMI is wrapped up in your mortgage payment so many people don’t even realize they are paying it.
But if you are paying for PMI there is good news and bad news.
The bad news is that PMI is required for those who don’t put 20% down on their home when they purchase it.
The good news is that the bank is required to stop charging you in certain circ*mstances.
First, if you have paid down your mortgage to 80% of the original loan, you can call your lending institution and request that the PMI be canceled.
Second, if you haven’t paid your mortgage down to 80% but have done improvements to your home that increased the value, you can have your home appraised. If the amount remaining on your mortgage x 1.25 is less than the new appraised value of your home, you can request that the PMI be canceled.
For example, say you owe $170,000 on your home and it just appraised for $220,000 due to a home remodel. Take $170,000 x 1.25= $212,500. $212,500 is less than the value of your home ($220,000) so you can request your PMI to be canceled.
Third, if prices have gone up in your area since you purchased your home, you can have your home appraised. If the amount remaining on your mortgage x 1.25 is less than the new appraised value of your home, you can request that the PMI be canceled.
For example, I bought a fixer-upper home (before and after photos here) for 40k more than the appraisal value (explanation of why here) and began paying PMI on the home loan. Then the market went up quite a bit just as we had completed our renovation. We had the home officially appraised by a certified appraiser and our equity went up to 70k. Our loan to new value was such that we were able to get our PMI removed.
Fourth, if you have paid for your loan for half of its time-frame/schedule (15 years on a 30 year loan), you can request that the PMI be canceled.
For example, say you have a balloon interest loan or a loan which is heavily front weighted in interest, you may have made payments for 15 years on a 30 year loan and not yet reached the 20% equity required to cancel PMI. Despite not owning 20% equity, once you hit the half way mark on the loan you can request PMI cancellation.
Fifth, start paying extra towards the principal and speed up the time frame you have until you own 20% equity in your home. I show in this post 3 secrets to save over $100,000 on your mortgage that banks don’t want you to know abouthow quickly gaining equity can happen by upping payments to principal.
Sixth, If you will end up being able to put down 20% on your new loan, you could try refinancing. Refinancing can be a costly decision. Before you refinance read my Pros and Cons of refinancing here.
Seventh, Wait until you have paid off 22% of your loan and your lender will automatically (as is required) terminate the PMI on your loan. Going this route will cost you months of PMI payments when you could technically request a cancellation once you have paid off 20% of your loan instead of 22%. So I really don’t recommend waiting till your lender automatically cancels.
Important Notes-
You must be current on your payments in order for PMI to cancel.
Your request to cancel in most cases must be in writing.
Your lender may request that you provide an appraisal. So contact your lender BEFORE paying for an appraisal and ask them what the process is to get an appraisal done that will be qualified to cancel your PMI.
With FHA loans you may have to have had the loan for at least 5 years and have paid down to 78% before they will remove the PMI. Although we had an FHA loan and it dropped with the appraisal within the first 6 months, rules are constantly changing. If you have an FHA loan ask your lender what the current rules are.
If you have a first and second mortgage and together your equity does not meet 20%, lenders are not required to drop the PMI.
The mandate to automatically remove PMI at 78% only affects new mortgages funded after July 1999. Fannie Mae and Freddie Mac have said they will apply this mandate to the older loans.
Canceling your PMI as soon as possible is a great way to put an extra $50-$400+ back into your pocket each month.
Another article or two that may be of interest:
3 Secrets to Save $102,533.35 on your mortgage that banks don’t want you to know about
Using this Simple and Free Excel file, you can calculate your real debt and determine the quickest and least expensive way to pay it off!
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To request cancellation of PMI, you should contact your loan servicer when the loan balance falls below 80 percent of your home's original value (the contract sales price or the appraised value of your home at the time it was purchased).
To request cancellation of PMI, you should contact your loan servicer when the loan balance falls below 80 percent of your home's original value (the contract sales price or the appraised value of your home at the time it was purchased).
Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
You can typically remove PMI if market conditions lead to a significant increase in your home's value. You have to make a request with your lender and order a new appraisal. The appraisal confirms your property value rose enough to where you own the required amount of equity.
Federal law allows you to submit a written request for PMI removal, which would start when the principal balance of your loan is scheduled to reach 80% of the original value of the property. Other qualifications for PMI cancellation include being current on your mortgage payments and having a good payment history.
The borrower may submit a written request to cancel PMI as of the date that, based on the amortization schedule(s) and regardless of the outstanding balance of the mortgage, the principal balance is first scheduled to reach 80% of the original value of the mortgaged property or an earlier date that, based on actual ...
Is mortgage insurance tax-deductible? No, private mortgage insurance isn't tax-deductible. The mortgage insurance deduction was made available again for eligible homeowners for the 2018, 2019, 2020 and 2021 tax years. It has not been renewed for the 2022 and 2023 tax years.
Timely payments count when it comes to getting rid of PMI. Late payments can put you in a high-risk category, making canceling harder. No other liens. Your mortgage must be the home's only debt, including second mortgages, home equity loans and lines of credit.
Dear (Servicer Name): I am requesting to cancel my private mortgage insurance. The coverage is with (Mortgage Insurance Company Name) and my mortgage loan number is (loan number). I have included documentation to support why I think the equity in my home has reached or exceeded 20%.
Yes. You have the right to ask your servicer to cancel PMI on the date the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. The first date you can make the request should appear on your PMI disclosure form, which you received along with your mortgage.
Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You'll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.
Getting rid of PMI is one way to lower your monthly costs. And once it's gone, you may still be able to tap the equity in your home (without reinstating PMI) with a home equity loan or line of credit. Along with your income, current debts and the home's value, your credit history and scores can impact your options.
If the mortgage insurance was financed at the time of origination and is canceled prior to its maturity you may be entitled to a refund if the refundable option was chosen at the time of origination. However, if there was no refund/limited option, this would negate any option for a refund.
Ask to cancel your PMI: If your loan has met certain conditions and your loan to original value (LTOV) ratio falls below 80%, you may submit a written request to have your mortgage servicer cancel your PMI. For more information about canceling your PMI, contact your mortgage servicer.
“After sufficient equity has built up on your property, refinancing from an FHA or conventional loan to a new conventional loan would eliminate MIP or PMI payments,” says Wendy Stockwell, VP of operations support and product development at Embrace Home Loans. “This is possible as long as your LTV is at 80% or less.”
Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You'll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.
Contact your loan servicer if you think this may be the case. Lenders might be willing to cancel your PMI if you have 20% equity based on the home's current value. However, you may need to pay for a home appraisal first.
You can't get rid of LPMI – With conventional loans, you can typically request to have traditional PMI removed once you achieve 20 percent equity in your home. But because the cost of LPMI is baked into your interest rate, you can only stop paying for it by refinancing to a new loan.
When your mortgage balance reaches 80% of the original home value, you can ask the mortgage servicer to cancel PMI. The original value is the lesser of the price you paid for the home or the appraised value of the property when you bought it.
Introduction: My name is Terence Hammes MD, I am a inexpensive, energetic, jolly, faithful, cheerful, proud, rich person who loves writing and wants to share my knowledge and understanding with you.
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