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How to Stop Paying Private Mortgage Insurance

How to Stop Paying Private Mortgage Insurance

If you've had a conventional mortgage for a few years, you may be able to reduce your monthly payment by getting rid of private mortgage insurance, or PMI.

Lenders typically require you to get PMI if you have a down payment of less than 20% when you buy your home. This insurance protects them if you stop paying the mortgage, and it can cost you between $30 to $70 monthly for every $100,000 borrowed, according to the government-sponsored mortgage giant Freddie Mac.

You usually can cancel PMI once your loan is down to 80% of the home's value. If you're not successful then, automatic termination will occur eventually. Here's an overview of both processes.

How to cancel PMI

Once your mortgage balance falls to 80% of the home's value, federal law gives you the right to request that your lender cancel PMI. Here's a step-by-step guide:

1. Contact your lender for guidelines.  To make the process easier, see if your lender has any specific guidelines. It's usually recommended to send a request for instructions in writing.

2. Check your payment history. To cancel PMI successfully, you typically need to be current on your mortgage and have a good payment history. This means not being late by 30 days or more on any payment in the past 12 months and not being late by 60 days or more in the past two years. If you have been later in either case, or have any second mortgages, like a home equity loan, you won't be able to cancel PMI.

3. Get your home re-appraised. Your lender may ask you to get your home appraised. This appraisal will confirm whether the market value of your property has decreased since you bought it. If it has, you may not be able to cancel PMI.

4. Calculate and compare your loan-to-value ratio based on the appraisal. Your loan-to-value (LTV) ratio is your mortgage balance divided by your home value. Most lenders require your ratio to be 80% in order to cancel PMI. Some may also talk about this percentage in reverse, so they'd require 20% equity, which is the home value minus the mortgage. This is the standard amount for a down payment.

5. Request PMI cancellation in writing. If you fulfill all the requirements and submit a request, the lender is obligated to cancel your PMI. The Consumer Finance Protection Bureau recommends making your request in writing.

Automatic termination

Even if you can't cancel your PMI, federal law requires your lender to remove it once your balance reaches 78% of your home's original value. This goes into effect as long as you're current on payments. Your lender must also stop PMI if:

  • You reach the date when your loan's original payment schedule calculated you would reach 78%, even if you haven't reached that benchmark. That can happen if your home decreases in value.
  • You reach the midpoint of your loan's payment schedule, such as after 15 years of a 30-year mortgage, before you make it to 78%.

If your lender refuses to end the PMI, you can follow up by writing polite but firm requests. Keep copies of them as evidence in case you need to take legal action.

By following these steps, you'll know when to think about removing private mortgage insurance. Once you cancel or wait for your lender to end it, you'll be able to save on future home payments.

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