How to Get Rid of Private Mortgage Insurance
If you didn't put 20% down when you bought your home, you're probably paying for private mortgage insurance. It's a type of insurance designed to protect the bank, should you ever default on your loan. And it isn't exactly cheap. You can expect to pay $1,000 a year for every $100,000 that you borrowed. That comes out to $83 a month! If you'd like to get rid of your private mortgage insurance for good, there are several ways to do it. Here's the scoop:
Pay Down Your Mortgage
Under the Homeowner's Protection Act of 1998, lenders are required to automatically terminate your private mortgage insurance (PMI) on the date when your principal balance is scheduled to reach 78% of the original home value (defined as the lesser of the sales price or appraised value of your home at the time that you bought it). Refer to your original amortization table or PMI paperwork for your 78% date, or call the bank to request it.
If you would like to get rid of your PMI sooner (and I'm betting you would), you can actually request that it be cancelled when you have paid your mortgage down to 80% of the original home value. To do so, you must be current on your mortgage payments and have a good payment history (no 30-day or more past due payments in the last year or 60-day or more past due payments in the last two years), and you must make your cancellation request in writing (a phone call won't do it).
You lender will likely ask you to submit proof that there are no other liens on your home, and may require an appraisal (at your expense) to prove that your home hasn't lost value. Once they verify that you have met all of their requirements, your private mortgage insurance will be cancelled.
Increase the Value of Your Home
If you have made considerable improvements to your home, or feel the home values in your area have gone up enough to give you 20% equity in your home, you can also request that your PMI be cancelled, but your lender has no legal obligation to grant your request. It is, however, still worth pursuing. Just know that you'll be expected to pay for an appraisal to prove that you have the equity you say you do.
Make It Half Way Through Your Mortgage
Your lender is also required to terminate your private mortgage insurance when you make it half way through your amortization schedule (even if your principal balance hasn't dropped to 78%). So, if you have a 30-year mortgage, this will happen when you reach year 15. This rule is referred to as final termination.
Thinking about refinancing your home to lock in a lower interest rate, a shorter loan term or both? Then, you have yet another opportunity to get rid of your private mortgage insurance. If the appraisal for your refinance shows that you have 20% or more equity in your home, you won't be required to pay for private mortgage insurance on the new loan. Score!
Exceptions to the Rule
The rules outlined here apply to mortgage loans that were made on or after July 29, 1999, and only pertain to homes that serve as a primary residence. Some states have laws on the books to help homeowner's cancel PMI on a second home, so check with your state, if this pertains to you.
Also know that these rules do not apply to loans that were classed as high-risk when they were made (final termination rules do apply), or any loan that is guaranteed by the FHA or Department of Veterans Affairs. Refer to the National Housing Act for your rights pertaining to those loans.