What is PMI?
PMI is a type of insurance that protects your lender if you default on your mortgage. It’s required by lenders when you make a down payment of less than 20% on your home. PMI can be expensive, often adding 0.3% to 1.5% of the original loan amount to your monthly mortgage payment.
How to Get Rid of PMI Without Refinancing
Here are some ways to get rid of PMI without refinancing your mortgage:
1. Wait for Automatic Termination
If you have a conventional mortgage, your PMI will automatically terminate when you reach 78% loan-to-value (LTV) based on the original property value. This means that if your home is worth $300,000 and your original loan was $240,000 (80% LTV), your PMI will automatically terminate when your loan balance reaches $234,000 (78% LTV).
2. Request Early Termination
If you’ve made significant improvements to your home or your home has increased in value, you may be able to request early termination of your PMI. You’ll need to provide evidence of the improvements or value increase, such as an appraisal or home inspection report. Your lender will review the information and determine whether to grant your request.
3. Make Extra Payments
If you make extra payments on your mortgage, you can pay down your loan balance faster and reach the 78% LTV threshold sooner. This will allow you to get rid of PMI without refinancing your mortgage.
4. Refinance to a Conventional Loan
If you have an FHA or VA loan, you can refinance to a conventional loan once you reach 20% equity in your home. This will allow you to get rid of PMI without waiting for automatic termination or requesting early termination.
FAQs
Q: How much does PMI cost?
A: PMI can cost anywhere from 0.3% to 1.5% of the original loan amount, depending on the size of your down payment and other factors.
Q: How long do I have to pay PMI?
A: If you have a conventional mortgage, your PMI will automatically terminate when you reach 78% LTV based on the original property value. If you have an FHA or VA loan, you’ll have to pay PMI for the life of the loan unless you refinance to a conventional loan.
Q: Can I cancel PMI once I reach 20% equity?
A: If you have an FHA or VA loan, you’ll have to refinance to a conventional loan once you reach 20% equity in your home to get rid of PMI. If you have a conventional mortgage, your PMI will automatically terminate when you reach 78% LTV based on the original property value.
Conclusion
Getting rid of PMI can save you hundreds of dollars every month, but you don’t have to refinance your mortgage to do it. By waiting for automatic termination, requesting early termination, making extra payments, or refinancing to a conventional loan, you can get rid of PMI and lower your monthly mortgage payment. Explore these options and talk to your lender to determine the best strategy for your situation.