Private mortgage insurance, or PMI, is what you pay to insurance the mortgage loan on your home.
If you’ve been paying your mortgage insurance premium for years and you want to find out how to get rid of PMI.
Were going to show you some of the strategies you can use to remove PMI and lower your monthly mortgage payment.
What is PMI?
PMI stands for private mortgage insurance which is an insurance policy on your mortgage loan. PMI will reimburse the mortgage lender if the borrower ever defaults on a mortgage. This helps reduce the risk of loss allowing mortgage lenders to offer home loans.
PMI is required on all mortgages with a loan-to-value ratio (LTV ratio) above 80%. LTV is another way to calculate the amount of equity you have in your home. If you have a LTV ratio of 7-%, this means of you have a 30% equity stake on your mortgage.
FHA loans require mortgage insurance for the life of the loan if you put less than 10% down. FHA has a slightly different term for mortgage insurance. It’s referred to as a mortgage insurance premium (MIP) and it’s required for 13 years if you put at least 10% down on an FHA mortgage.
How to get rid of PMI
To remove PMI on your home loan you’ll need to have an LTV ratio below 78%. If you have an FHA loan you may need to refinance into a conventional loan to get rid of PMI.
- Keep up with monthly payments while also having a good payment history
- Make sure the balance of your loan is 78 percent or less of the current value of your home
- You cannot have a second mortgage on the property
- Have a decent FICO score
Of all three of the above prerequisites, the second one may be the most significant. This one, most of all, helps you determine whether or not you can get a PMI in the first place. The value of your house can change over the years.
You may have bought it at $100,000 five years ago but, now, its value increased to $150,000. This means a decrease in the loan-to-value ratio, the new LTV ratio may be under 78 percent. In order to find out the current market value of your home lenders will order a new home appraisal.