I. Introduction
If you’re a new homeowner, you may have heard of private mortgage insurance, or PMI. This added cost to your monthly mortgage payment is required if you put less than 20% down on your home purchase. While PMI can be helpful in securing a mortgage, it can also add up to thousands of dollars over the course of your loan. That’s why it’s important to get rid of it as soon as possible – and we’re here to show you how.
In this article, we’ll explore 5 proven strategies for eliminating PMI from your mortgage, provide a step-by-step guide for cancelling PMI, and offer expert tips for lowering your overall mortgage payment. We’ll also share success stories from other borrowers who have benefitted from eliminating their PMI. Let’s get started!
II. 5 Proven Strategies to Eliminate PMI from Your Mortgage
The first step to getting rid of PMI is to understand your options. Here are five strategies you can use to cancel or avoid PMI altogether:
Strategy 1: Get a new home appraisal
If you’ve made significant improvements to your home since purchasing it, you may be eligible to cancel PMI early based on a new home appraisal. To qualify, you’ll need to have made at least 20% equity in your home, which can be achieved by paying extra toward your principal or by your home value increasing. Once you have 20% equity, provide your lender with a new home appraisal to request PMI cancellation.
Strategy 2: Make extra payments toward your principal
Making extra payments toward your mortgage principal can also help you reach the 20% equity threshold needed to cancel PMI. By paying more than your required monthly amount, you decrease the balance of your loan faster. This can increase your equity and, subsequently, remove the PMI requirement.
Strategy 3: Refinance your mortgage
Another way to remove PMI is to refinance your mortgage. If you’ve improved your credit score or interest rates have gone down, refinancing can help you save money and potentially eliminate the PMI requirement. Be aware that refinancing comes with its own set of financial considerations and closing costs, so be sure to weigh the pros and cons before making a decision.
Strategy 4: Wait until your lender automatically removes PMI
In some cases, your lender may automatically remove PMI once you’ve reached a certain equity level, typically 22%. However, it’s important to note that you may still be required to take action to initiate the PMI cancellation process. Be sure to contact your lender to confirm their policies and ensure the PMI removal is completed.
Strategy 5: Appeal to your lender for early PMI removal
If you’re close to reaching 20% equity but have not yet met your lender’s PMI removal requirements, you may be able to appeal directly to your lender. Explain your situation in detail and request early PMI removal. While it’s not guaranteed to work, it’s worth a shot!
III. The Ultimate Guide to Removing Private Mortgage Insurance
Now that you understand the different strategies available for removing PMI, let’s dive into the details. It’s important to note that there are specific legal requirements for PMI removal, as outlined in the Homeowners Protection Act of 1998. Here’s what you need to know:
Legal requirements for PMI removal
According to the Homeowners Protection Act of 1998, lenders are required to remove PMI once your loan-to-value ratio (LTV) reaches 78%. This means that if you have paid down your home loan to the point where you have 22% equity, your lender must automatically remove PMI. However, borrowers can request PMI cancellation once they have reached 20% equity.
Methods for removing PMI
There are three methods for removing PMI: automatic termination, borrower requested cancellation, and final termination. Automatic termination is when your lender automatically removes PMI when you reach a certain equity level, typically 22%. Borrower requested cancellation is when you request PMI removal once you have reached 20% equity. Final termination is when PMI is removed once the loan balance reaches 78% of the original value of the home.
Tips for navigating the PMI removal process with your lender
To ensure a successful PMI removal process, it’s important to communicate clearly with your lender and provide any necessary documentation. Here are a few tips to follow:
- Keep detailed records of your payments and how much equity you have in your home.
- Contact your lender as soon as possible to initiate the PMI cancellation process.
- Provide all required documentation, such as a new home appraisal or proof of extra payments.
- Follow up with your lender to ensure the PMI removal has been completed.
IV. Step-by-Step: How to Cancel PMI and Save Money
If you’re ready to cancel your PMI and save money on your monthly mortgage payment, follow these steps:
- Contact your lender and request PMI removal.
- Provide any necessary documentation, such as a new home appraisal or proof of extra payments.
- Confirm that the PMI removal has been completed.
- Enjoy your lower monthly mortgage payment!
It’s important to note that the exact steps may vary depending on your lender’s policies and requirements, so be sure to consult with them directly.
V. The Top 3 Secrets to Eliminating PMI Quickly and Easily
If you’re looking for even more ways to eliminate PMI, consider these three lesser-known strategies:
1. Pay a lump sum toward your mortgage
If you receive a large sum of money, such as a bonus from work or an inheritance, consider putting it toward your mortgage. This can help you reach the equity threshold needed to cancel PMI faster and save money in the long run.
2. Make bi-weekly payments
By making bi-weekly payments instead of monthly payments, you’ll be making an extra full payment each year. This can help you reach the equity threshold faster and save on interest charges in the long run.
3. Appeal to a higher authority
If your lender is unwilling to remove PMI, consider appealing to a higher authority such as the Consumer Financial Protection Bureau (CFPB) or your state attorney general’s office. Be sure to provide detailed documentation and explain your situation clearly.
VI. Expert Tips for Ditching PMI and Lowering Your Mortgage Payment
Want even more advice for eliminating PMI and lowering your overall mortgage payment? We’ve talked to several experts, including mortgage brokers and financial advisors, to get their top tips:
- Refinancing can be a great option for reducing your monthly mortgage payment and potentially eliminating PMI, but be sure to shop around for the best rates and terms.
- If you’re making extra payments toward your principal, be sure to specify that the extra amount should be applied to your principal balance and not toward future payments.
- Consider consulting with a financial advisor to ensure that eliminating PMI is the best decision for your overall financial goals.
By following these tips, you can achieve a lower monthly mortgage payment and become PMI-free.
VII. From PMI to Profit: How Homeowners Can Remove Mortgage Insurance and Boost Equity
Finally, let’s talk about the financial benefits of eliminating PMI. Not only will you save money on your monthly mortgage payment, but you’ll also boost your equity in your home. This increased equity can be reinvested in your home or used to achieve other financial goals.
For example, one homeowner we spoke with was able to eliminate PMI and save $200 per month on their mortgage payment. They reinvested this extra money into their home by adding a home office, which increased the value of their home. When they eventually sold their home, they were able to make a significant profit thanks to their increased equity.
VIII. Conclusion
We hope this article has helped you understand the different strategies and tips for eliminating PMI from your mortgage. Remember, the key is to communicate clearly with your lender, keep detailed records, and take action as soon as possible. By putting in a little extra effort, you can save money on your mortgage payment, increase your home equity, and achieve financial peace of mind.
Don’t let PMI hold you back from achieving your financial goals.
