How to get rid of Private Mortgage Insurance (PMI)
Hundreds of dollars can be added to mortgage payments, by Private Mortgage Insurance. Mortgage lenders use a form of insurance known as PMI to reduce the risk of mortgages with low down payments. In case you default on your mortgage, PMI acts as an insurance that protects the mortgage lender. In most cases, as the buyer, you would be able to get rid of Private Mortgage Insurance (PMI). You can exercise this right under the Homeowner’s Protection Act, a law that was passed in 1998. The amount of PMI you have to pay is dependent on the amount of your down payment and your credit score.
The PMI can be requested when you reach 80% of home equity. There might be additional terms and conditions imposed on PMI by mortgage lenders.
Discussing the Final Termination :
The mortgage lender is obliged to automatically terminate PMI when the borrower’s mortgage balance reaches 78% of the price of the original purchase. This process is known as final termination. However, for this to happen, the borrower should not have missed any scheduled mortgage payments.
Another method to get rid of PMI is to request the lender to cancel PMI once the loan balance of the borrower reaches 80% of the home’s original value. If there is extra cash available for you to spare, it will be very easy for you to reach the 80% point. This can be achieved by making extra payments.
To build equity at a faster rate, you can choose to prepay the principal on the loan. This method can also help you to save on interest payments. By multiplying your original purchase by 0.80, you can easily estimate the amount that is required to be eligible for PMI cancellation. There are a few steps that are to be followed to cancel PMI.
Few steps regarding cancellation of Private Mortgage Insurance :
- Submit the request for the cancellation of PMI to your lender in a written format.
- Maintain a good payment history and on your mortgage payments, and be current.
- Meet other requirements and terms imposed by the mortgage lender for your PMI to canceled.
- You might be unable to cancel the PMI if the value of your home has declined. So if necessary, get a home appraisal.
Another option that is to considered to get rid of Private Mortgage Insurance is to refinance your mortgage. Refinancing your mortgage helps you to save up on interest costs and also in the reduction of monthly payments that are to be made. If your home has gained substantial value in recent years, refinancing tactics expected to work well. Refinancing recommended implementing when mortgage rates are low.
If your home has gained value in recent years, reappraisal is a good option to consider. It is probable that your home equity could reach 20% ahead of the schedule when the real estate market is rising. You can ask for your PMI to be canceled if your balance is not more than 80% of the new value and you have owned the home for the past five years.
