Private Mortgage Insurance benefits the lender if a borrower with less than a 20% down payment defaults on their loan. In this article, we explore ways borrowers can Eliminate Private Mortgage Insurance.
Most conventional mortgages greater than 80% and all FHA loans require the borrower to carry Private Mortgage Insurance, (PMI).
The PMI on conventional loans can range from 0.5% to 2.25% based on the loan-to-value and the credit worthiness of the borrower. A $350,000 mortgage would have a monthly mortgage insurance premium of $146 a month at the low-end of the scale and over $600 on the high-end.
You can accelerate the end of your PMI with Additional Principal payments.
You may request your mortgage servicer cancel the PMI when the principal balance reaches 80% of the original value at the time the loan was made. You should have received a PMI disclosure form when you signed the mortgage documents stating the date. If you have made additional principal contributions, it will accelerate that date, allowing you to Eliminate Private Mortgage Insurance if you meet the criteria.
Some of the criteria lenders look at before they will Eliminate Private Mortgage Insurance on your loan:
- The request must be in writing.
- You must be current on your payments with a good payment history.
- The lender may ask that you certify there are no junior liens in effect.
- If the lender is concerned that the value has declined, an appraisal may be required to show that it is eligible.
Conventional loans are supposed to remove the mortgage insurance when the unpaid balance is 78% of the original purchase price.
Another possibility is that the lender/servicer must end the PMI the month after you reach the midpoint of your loan’s amortization schedule. For a 30-year loan, it would be after the 180th payment was paid. The borrower must be current on the payments for the termination to occur.
Increasing home values increases Homeowner equity
With the rapid appreciation many homes have enjoyed in recent years and low interest rates, you may be able to refinance your home with a new mortgage amount that’s less than 80% of the current appraised value, in this case you would be able to Eliminate Private Mortgage Insurance previously required.
Calculate the Savings
Even though the borrower incurs the cost of refinancing, that will be offset by the cost savings when you Eliminate Private Mortgage Insurance. To calculate the savings, subtract the new principal and interest payment from the old principal and interest with PMI. Then, divide the savings into the cost of refinancing to determine the number of months necessary to recapture the cost.
FHA loans have two types of mortgage insurance premium: up-front and monthly. For loans with FHA case numbers assigned on or after June 3 2013 with LTV% greater than 90%, the MIP will be paid for the entire term of the loan. If that is the case, refinancing on a conventional loan is the only way to eliminate the MIP. For loans with original LTV% less than 90%, the MIP is collected for 11 years until the balance is 78% of the original amount.
When buying a home, Buyers don’t always have all of the resources needed for a large down payment. So it makes sense to find the best mortgage available to buy the home. The next goal should be to manage the mortgage to lower the overall costs so you can Eliminate Mortgage Insurance.
If you’re thinking about buying a home in our Desert area, we’re here to help. We have the local knowledge and resources you’ll need to make your home purchase smooth and successful. Give us a ring, or send a quick email, we can chat about your goals for your next home purchase here in our Beautiful Desert Area.
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Cathi@DesertAreaHomeFinder.com
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