How to Get Rid of Private Mortgage Insurance (PMI)

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When you bought your home, you may have been required to take out Private Mortgage Insurance (PMI) if you didn’t make a sizeable down payment. PMI is normally required when you borrow more than 80% of the property’s value, even if you have perfect credit. If you buy a house with less than a 20%…
When you bought your home, you may have been required to take out Private Mortgage Insurance (PMI) if you didn’t make a sizeable down payment. PMI is normally required when you borrow more than 80% of the property’s value, even if you have perfect credit. If you buy a house with less than a 20% down payment, you can expect your mortgage payment to include a monthly Private Mortgage Insurance premium.
how to stop paying private mortgage insurance (PMI)
Stop paying private mortgage insurance!

The bad news is, this insurance does nothing for the buyer of the home, like homeowners insurance; instead, it is designed to protect the mortgage lender in the event you don’t pay for your loan. The good news is, PMI can be removed once you’ve paid your loan down to a certain balance, so you aren’t stuck paying the PMI premiums forever.

The following tips explain the costs of PMI and how you can more quickly eliminate that expense.

The Cost of Private Mortgage Insurance

Your PMI premium will vary depending on the type of mortgage you have, and the length of time you took your loan out for. Private Mortgage Insurance usually ranges between ½ to 1% of the total loan amount, per year. On a $200,000 house where you put 10% down, your PMI premium will probably cost between $75 and $150 each month.

If you obtained your mortgage after 2006, your PMI premiums are tax-deductible expenses if your adjusted gross income is less than $109,000 for married couples or $54,500 for individuals. When you receive Form 1098 from your mortgage lender at tax time, you’ll see how much you paid in Private Mortgage Insurance premiums.

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How to Stop Paying Private Mortgage Insurance

In most situations, lenders must cancel PMI when you pay your mortgage to 78% of the home’s value, and you are current on your monthly mortgage payments, according to The Homeowner’s Protection Act of 1998. Before this act was created, homeowners who didn’t know they could cancel PMI would continue to pay it to lenders who didn’t remove it for them.

You can also be proactive, and request a cancellation of your PMI premiums once your mortgage reaches 80% loan-to-value ratio; instead of waiting until it reaches the required 78% for automatic removal under the Homeowner’s Protection Act of 1998. You’ll need to be current on mortgage payments, not have a lien on the property or have a high-risk loan to be approved.

Additionally, if you’ve been paying your mortgage through the midpoint of your loan (15 years on a 30-year mortgage term, for example), PMI must be canceled even if you don’t meet the balance requirement of 78% of the home’s value. This is because, in some situations, the property value is decreasing as fast (or faster) as you’re paying off your mortgage.

If the value of your home has increased above your original purchase price, your loan-to-value ratio could decrease and help you meet the 80% or 78% rules that allow you to cancel your PMI. Keep an eye on the home’s value, so you know when you have the opportunity to cancel PMI.

Tip: Haven’t bought your house yet? An 80-10-10 mortgage is designed to avoid PMI from the outset. There are pros and cons to these mortgages, so be sure to read up on them before using this option.

How to Cancel PMI Faster

If the idea of paying an extra $75 to $150 a month in PMI premiums makes you sick, here’s what you can do to reach the 80% loan-to-value ratio quicker:

  • Send extra mortgage payments each month to pay your loan down faster (making biweekly mortgage payments is a great way to do this).
  • Complete home improvement projects which increase the value of your home and then have your home appraised to show the new value.
  • Pay your mortgage on time, every time so you can cancel at 80% loan-to-value ratio rather than waiting to reach 78%.
  • Don’t take out home equity loans or lines of credit as they reduce your property’s equity and cause you to pay PMI longer.

Remember, Private Mortgage Insurance doesn’t benefit you – it benefits the lender. So you want to get rid of it as quickly as possible. Eliminating PMI is a great way to free up some additional cash flow each month to help you reach other financial goals.

Another form of insurance we often are asked about is Mortgage Life Insurance, and whether or not it is something you should have. Check out our post on the pros and cons of Mortgage Life Insurance for your reference!

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Kelly says

    I am at 77% LTV. Although I do have a rough payment history, we have paid extra and made last 3 payments on time. Mortgage company insists I do not qualify for auto removal due to prior late payments. Are they right?

  2. Michael says

    I think what was not clearly stated is what kind of home improvements will qualify for the appraisal. Bank, WF for example, absolutely does NOT care about home market value for the PMI removal purpose! Even if WF appraiser would appraise your home according to the favorable market condition (bringing home owner to better than 0.78 LTV), but at the same time home owner will fail to show structural ADDITIONs to your home with all the receipts, PMI will NOT be removed. Replacing roof, tile, etc that brings the value of the home up is NOT considered as home improvement by the WF! Home living space improvements is a very gray area that is defined only by your bank. What only black and white is additions to your home: pool, garage, fence etc…

  3. Evan says

    Hi,

    I too have PMI with a 5 year minimum. Have you ever heard of a bank dropping it before the contracted minimum? If so – whats the best way to approach that?

    Thanks.

  4. Terry says

    Wouldn’t getting your house reassessed if it has gone up in value possibly lead to higher taxes, which might outstrip any gains from eliminating PMI?

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