If you bought a house with a down payment of less than 20%, your lender required you to buy mortgage insurance. The same applies if you refinanced with less than 20% equity. Private mortgage insurance is expensive, and you can remove it after you have met some conditions.
How can I get rid of PMI?
To remove PMI, or private mortgage insurance, you must have at least 20% equity in the home. You may ask the lender to cancel PMI when you have paid down the mortgage balance to 80% of the home’s original appraised value. In some cases, when the balance drops to 78%, the mortgage servicer is required to eliminate PMI.
Although you can cancel private mortgage insurance, you cannot cancel recent FHA insurance.
What is mortgage insurance for?
Mortgage insurance reimburses the lender if you default on your home loan. You, the borrower, pay the premiums. When sold by a company, it’s known as private mortgage insurance, or PMI. The Federal Housing Administration, a government agency, sells mortgage insurance, too.
What else can I do?
Even if you cannot eliminate PMI due to a lack of sufficient equity in your home, you may be able to reduce it by refinancing. Refinancing to lower your rate and lower your monthly mortgage insurance payment is a popular option in today’s rate environment. So, don’t let the 20% rule get you down.
For homeowners with an FHA loan, refinancing to a conventional loan, even one with PMI, would allow you to take advantage of the PMI drop once the home reaches 78%–something that newer FHA loans don’t support.
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