Private mortgage insurance (PMI) might be unavoidable for some borrowers, but the good thing is you don’t need to pay for it forever. That is if you know exactly when you are eligible for PMI cancellation. If you are, you could stop paying premiums and use that money for paying for your principal.
When Lenders Automatically Cancel Private Mortgage Insurance
If you’re among the lucky ones who bought your home since 1999 and still pay PMI premiums, you most likely qualify for the Homeowners Protection Act (HPA) of 1998. This means that under the Act, your mortgage lender is required to cancel your PMI automatically provided that you have paid about 0.78 or 78% of your mortgage’s loan to value (LTV) ratio. Similarly, you’re eligible for automatic cancellation once you have built up about 22% of home equity. It’s best to consult your lender for confirmation.
When You Might Need to Request for PMI Cancellation
Most borrowers do not necessarily need to wait for their lenders to cancel their PMI. Once you reach the 80% LTV, you could request to cancel PMI payments. It is, however, crucial to note that this entire process could take a couple of weeks and that your lender is not in any way required to do this, but you’d have better luck being granted a cancellation if you’re current on your payments.
In addition, if you’re still not in the 80% threshold, you could try canceling your PMI if you reach the midpoint of your loan. For example, this would be around your 15th year of making payments if you have a 30-year home loan.
Avoiding PMI Altogether
If you have yet to obtain a mortgage and want a true no PMI mortgage, Altius Mortgage Group and other top lenders in Salt Lake City suggest a piggyback mortgage, also called an 80/15/5 or an 80/10/10 mortgage.
In general, your lender would fund 80% of your mortgage, give you another mortgage for 15% or 10%, while you only have to put down 10% or 5%, and then do away with PMI altogether. However, you need to have a stellar credit rating and the additional interest typically given for the second home loan might actually be higher than PMI payments.
Do your due diligence first and make certain that you end up with a setup that you could comfortably afford. This way, you won’t regret it in the end.