How to cancel private mortgage insurance years ahead of schedule

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How to cancel private mortgage insurance years ahead of schedule
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If you’re a homeowner who’s fed up with paying private mortgage insurance, also known as PMI, there’s an unusual opportunity right now to possibly get rid of it years ahead of schedule.

Homebuyers who put down less than 20% almost always have to carry PMI, according to money expert Clark Howard.

RELATED: What is an amortization schedule? Use this chart to pay off your mortgage faster

Are you paying private mortgage insurance? Here’s how to ditch PMI early!  

“It’s an insurance premium for the lender to protect them because when people put down less than 20%, they’re more likely when times get tough to get foreclosed on,” Clark says.

The Consumer Financial Protection Bureau (CFPB) says federal law provides rights to remove PMI for many mortgages:

You have the right to request that your servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80% of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can’t find the disclosure form, contact your servicer.

Even if you don’t request to cancel PMI, your lender must terminate it on the date when your principal balance is scheduled to reach 78% of the original value of your home, according to the CFPB.

If you only make regular monthly mortgage payments, it can take quite a few years to eliminate PMI on a conventional loan.

But here’s the good news: If you’ve benefited from surging home values over the past few years, some lenders may allow you to pay for a new appraisal and drop PMI if the appraisal shows at least 20% equity in the home.

Erin Lantz, vice president of mortgages at the online real estate website Zillow, provided Clark.com with more details:

“For those homeowners with certain mortgage products that are currently paying private mortgage insurance premiums as a result of a smaller down payment, it can make a lot of sense to have their home re-appraised to find out if they’ve built up enough equity to take the PMI requirement off their accounts. This could result in some incremental monthly savings they could use to reinvest in their home, save for a down payment on another, larger home, or pay down debt ‘ among other things. Paying for another appraisal and/or refinancing can bring some additional costs of their own, but the monthly savings that come from it could be more than enough to offset those costs.”

Enter your address on Zillow’s website to get an estimate of your home’s current value, which can help you determine if paying for a new appraisal is a good idea.

You also want to call your lender to ask about options for removing PMI and to request a list of approved appraisers.

“Know your area. If you’ve seen big increases in the homes around you, then it may well be worth you spending the several hundred dollars to have the appraisal done and dump PMI,” Clark says.

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Michael Timmermann paid off his mortgage in two years. Now, he shares his money-saving tips on his blog, MichaelSaves.com.
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