How to Get Rid of Your PMI

Private mortgage insurance, or PMI, has been around in some form since the late 1950s. Prior to that period, conventional loans underwritten to Fannie Mae and Freddie Mac guidelines required a down payment of at least 20%. That kept millions from buying a home they truly wanted because they didn’t have enough down payment. They either had to wait or take out a government-backed loan program that limited the amount they could borrow. PMI stepped in and fixed that.

PMI is an insurance policy with the premium typically paid by the borrower in favor of the lender for loan balances that are greater than 80% of the sales price. The insurance policy paid the lender the difference between a borrower’s down payment and the 80% limit. For example, on a home selling for $300,000 and the borrowers put down 5.0%, or $15,000, the PMI policy would pay the lender $45,000 in the instance of default. The most common PMI premium is an annual one paid out in monthly installments. Using this example a monthly PMI payment would be around $140. Rates for PMI can vary based upon the amount down, credit scores and the type of mortgage taken. This payment remains until the loan balance naturally amortizes down to 80% of the original value of the home, or around 11 years. But borrowers don’t have to wait 11 years. They can take action on their own.

One option is to simply make extra payments, accelerating the 80% arrival. Conventional loans do not have prepayment penalties so borrowers can make extra payments each month, once per year or a one-time principal paydown. Borrowers contact their lender and make a written request to have PMI removed. The lender will then process the application and collect a fee and order a new appraisal.

When property values appreciate over time, getting to the 80% value can also arrive a little faster. If homeowners feel their property has appreciated to the point where PMI is no longer needed, they can begin the process of having PMI removed. Finally, homeowners can combine both a principal paydown and property appreciation, with both contributing to PMI removal.

PMI helps borrowers get conventional loans without the traditional 20% down payment, but PMI won’t be on the loan forever. And sometimes sooner rather than later.

For more information or questions about mortgage loans,
Please visit Majestic Home Loan
Or Call  (855) 757-8748

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