How to Get Rid of PMI: Strategies for Early Elimination
Learn how to avoid paying for private mortgage insurance (PMI) on your mortgage in this research-backed guide. Strategies include increasing your down payment and making extra payments, as well as exploring refinance options for early elimination.
What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is an insurance policy that homebuyers are required to purchase when their loan balance is over 80% of the purchase price of the home. This insurance is intended to protect lenders by offering a form of payment in the event that a homeowner defaults on their loan. PMI is usually paid as part of the monthly mortgage payment and can add hundreds of dollars to the cost of owning a home.
Why Should You Get Rid of PMI?
When the loan balance is close to 80% of the purchase price or lower, the homeowner is no longer responsible for paying PMI. By getting rid of PMI, the monthly mortgage payment can be reduced significantly. This saves the homeowner hundreds of dollars a year. Additionally, having PMI removed will also raise the homeowner's equity in their home, which can be beneficial in the event of financial troubles in the future.
Strategies for Early PMI Elimination
Getting rid of PMI can be done through a variety of strategies. One of the most common and quickest strategies is to make additional payments against the principal balance of the loan. Doing so will reduce the loan balance and bring it closer to 80% of the purchase price. Another strategy is to increase the value of the home by making improvements or remodeling. A formal appraisal may be necessary to demonstrate that the value of the home is now higher than when the loan was originated. Finally, a refinance into a new loan is also an option. This usually requires a credit check and other loan origination fees.
Conclusion
Getting rid of PMI can save homeowners hundreds of dollars a year on their mortgage payments and help increase their home's equity. There are several strategies for eliminating PMI including making additional payments, increasing the value of the home, and refinancing into a new loan. Homeowners should weigh the costs and benefits of each strategy and find the option that works best for them.