How to Cancel Private Mortgage Insurance (PMI)

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If you’re a homeowner with a mortgage, you may be paying for private mortgage insurance (PMI). PMI is designed to protect lenders in the event that a borrower defaults on their mortgage payments. However, it can be costly and unnecessary if you’ve built up enough equity in your home. In this article, we’ll explain how to cancel private mortgage insurance and potentially save yourself thousands of dollars in the process.

What is Private Mortgage Insurance?

Private mortgage insurance is a type of insurance that protects a lender in the event that a borrower defaults on their mortgage payments. If you put less than 20% down when purchasing your home, your lender may require you to pay for PMI as a condition of the loan.

PMI typically costs between 0.3% and 1.5% of the original loan amount per year, which can add up to thousands of dollars over the life of the loan. Fortunately, there are ways to cancel PMI and stop paying these unnecessary fees.

How to Cancel PMI

The process for canceling PMI varies depending on the type of loan you have and how much equity you’ve built up in your home. Here are the most common ways to cancel PMI:

1. Automatic Termination

If you have a conventional loan, your PMI will automatically terminate once you’ve paid off 22% of the original loan amount. This means that if you put 10% down when purchasing your home, you’ll need to pay off an additional 12% of the loan before your PMI can be cancelled.

It’s important to note that the automatic termination process only applies to loans originated after July 29, 1999. If your loan was originated before this date, you’ll need to follow the guidelines outlined below.

2. Request Cancellation

If you’ve built up at least 20% equity in your home, you can request that your lender cancel your PMI. You’ll need to provide evidence that your home’s value has not declined since the time of purchase, such as an appraisal or a broker price opinion.

Your lender may also require you to have a good payment history and be current on your mortgage payments. If you meet these requirements, your lender should cancel your PMI.

3. Refinance Your Mortgage

If you can’t meet the requirements for automatic termination or cancellation, you may be able to refinance your mortgage to eliminate PMI. If your home has increased in value since the time of purchase, you may be able to refinance with a new loan that has a loan-to-value ratio of less than 80%, which would eliminate the need for PMI.

Keep in mind that refinancing your mortgage can come with its own set of costs and fees, so make sure to weigh the pros and cons before making a decision.

Conclusion

Private mortgage insurance can be a costly and unnecessary expense for homeowners, but there are ways to cancel it and potentially save yourself thousands of dollars over the life of your loan. If you have a conventional loan, your PMI will automatically terminate once you’ve paid off 22% of the original loan amount. If you have an FHA loan, you’ll need to refinance to eliminate PMI. If you have any questions about how to cancel PMI, speak with your lender or a qualified mortgage professional.

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