What is PMI?
PMI is insurance that protects the lender in case you default on your mortgage. If you put less than 20% down on your home, your lender will likely require you to pay for PMI. PMI can add hundreds of dollars to your monthly mortgage payment.
How to Drop PMI
To drop PMI, you need to have at least 20% equity in your home. Equity is the difference between what you owe on your mortgage and what your home is worth. Here’s how to drop PMI:
1. Get an appraisal
To determine your home’s current value, you’ll need to get an appraisal. You can hire an appraiser or use an online home value estimator. Once you know your home’s value, you can calculate your equity.
2. Calculate your equity
To calculate your equity, subtract what you owe on your mortgage from your home’s value. For example, if your home is worth $300,000 and you owe $240,000 on your mortgage, your equity is $60,000.
3. Contact your lender
Once you have at least 20% equity in your home, contact your lender and ask them to remove PMI from your mortgage payment. You may need to provide documentation of your home’s value and your equity.
4. Refinance your mortgage
If you can’t get your lender to remove PMI, you may need to refinance your mortgage. Refinancing your mortgage can be a good option if you can get a lower interest rate or better terms. However, refinancing can also be expensive, so make sure you weigh the costs and benefits before you refinance.
FAQ
What is PMI?
PMI is insurance that protects the lender in case you default on your mortgage.
How much does PMI cost?
PMI can add hundreds of dollars to your monthly mortgage payment.
When can I drop PMI?
You can drop PMI once you have at least 20% equity in your home.
How do I calculate my equity?
To calculate your equity, subtract what you owe on your mortgage from your home’s value.
Can I refinance my mortgage to drop PMI?
Yes, you can refinance your mortgage to drop PMI if you can’t get your lender to remove it.
Conclusion
If you’re a homeowner with a mortgage, you may be paying for PMI. However, once you’ve built up enough equity in your home, you can drop PMI and save yourself some money. Follow these steps to drop PMI and enjoy lower monthly mortgage payments.