Author:
Jordan Lawrence
Published

Save Money on Your Mortgage

You bought your house a year ago, and now it’s worth much more. So, how do you get rid of that pesky PMI (Private Mortgage Insurance)? Today’s blog post walks you through the steps to remove PMI and save money.

Understanding PMI and Why You Have It

PMI stands for Private Mortgage Insurance, which is required for conventional loans when you put down less than 20%. If your down payment is less than 20%, PMI protects the lender because they are lending a higher percentage of the home’s value.

To even consider canceling PMI, you must make at least 24 payments or two years of payments. So, patience is key.

Two Ways to Cancel PMI

There are two main ways to get rid of PMI: through appreciation or payments.

1. Appreciation

The housing market has been booming, and your home is likely worth more now than when you bought it. Here’s how to use appreciation to your advantage:

  • New Appraisal: Call your mortgage servicer and request a new appraisal. You’ll need to pay for this appraisal, which typically costs $400 to $500.
  • Example: If you bought your house for $400,000 and it’s now worth $500,000, you can substantiate the new value with this appraisal. If the new appraisal shows that your home’s value has increased significantly, and you’ve made your payments for over two years, your servicer can remove the PMI.

Key Points:

  • You must be past the two-year mark.
  • The new appraisal must validate your home’s increased value.
2. Payment History

If you’ve been diligently paying down your mortgage, you might reach the 20% equity mark through your regular payments:

  • Amortization Schedule: Each mortgage payment reduces your loan balance. The more you pay, the closer you get to 80% loan-to-value (LTV).
  • Timeline: If you initially put down 5%, it might take 5 to 8 years to reach the point where your loan balance is 80% of the home’s value.

In both cases, whether through appreciation or diligent payments, once you hit the 80% LTV, you can contact your mortgage servicer to cancel PMI.

What About FHA Loans?

If you have a government-backed FHA loan, the scenario is a bit different. FHA loans require Mortgage Insurance Premium (MIP), which stays in place for the life of the loan. Unlike PMI on conventional loans, MIP does not automatically go away after reaching 20% equity.

Conclusion

Getting rid of PMI can save you a substantial amount of money each month. Remember, you must wait at least two years and either pay down your mortgage aggressively or prove your home’s increased value with a new appraisal. If you have any questions or need help navigating this process, don’t hesitate to reach out. We’re here to help you make the most of your mortgage and maximize your savings.