“How to Save Money by Cancelling Your Private Mortgage Insurance”

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Save Money by Getting Rid of Private Mortgage Insurance (PMI)

Eliminating your private mortgage insurance (PMI) can lead to significant savings, as this insurance only benefits your lender. Your homeowners insurance is what protects you. The sooner you cancel PMI, the more you save. Here are five strategies to consider.

1. Wait for Automatic Cancellation

The federal Homeowners Protection Act of 1998 mandates that your loan servicer must automatically cancel your PMI once you reach 22% equity in your home. This is also noted as when the principal balance is 78% of the home’s original value. Additionally, PMI must be canceled halfway through your loan term, such as 15 years into a 30-year mortgage, even if you don’t have 22% equity. To qualify, you must be current on your mortgage payments.

2. Request Early PMI Cancellation

You can request your loan servicer to cancel PMI once you have 20% equity based on the home’s original value. To qualify, you need a good payment history and must not be behind on payments. You may also need an appraisal, and the lender can deny your request if the home’s value has decreased.

3. Make Extra Mortgage Payments

Paying down your mortgage early can help you reach 20% equity faster. This can be done by making one large payment or by adopting a biweekly payment schedule, which results in two extra payments each year.

4. Increase Your Home’s Value and Get an Appraisal

If your home’s value has increased due to market conditions or home improvements, you might have over 20% equity. Contact your loan servicer to see if they will cancel PMI based on the current value, though you may need to pay for an appraisal.

5. Refinance Your Mortgage

Refinancing your mortgage is another option. Whether you need to pay PMI on the new loan depends on your home’s current value and the new mortgage’s principal balance. You can avoid PMI if your equity is at least 20% and you don’t use a cash-out refinance. Some lenders offer PMI-free mortgages with lender-paid private mortgage insurance (LPMI), but these often come with higher interest rates.

Check Your Credit and Be Prepared

Removing PMI can lower your monthly costs. Even after PMI is gone, you can still access your home equity with a home equity loan or line of credit. Your credit history and scores, along with your income and current debts, will impact your options. Check your Experian credit report for free, which includes free credit monitoring. Monitoring your FICO® Score based on your Experian report can help you estimate potential interest rates for refinancing or home equity loans.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with all your mortgage needs and ensure you get the best possible service.

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