First off, what is private mortgage insurance? Often referred to as PMI, it is an insurance policy that is designed to protect the lender from any loss on their investment if you end up in foreclosure. PMI is determined based on how much you put down as well as your credit score. It can range from 0.3% – 1.5% of the orignial loan amount per year. It can be around $100 a month or more depending on how much your mortgage is for.
Don’t worry, if you have to get PMI you won’t be stuck with it forever! Once the principle of your loan drops below 78% of your home’s value, the lender MUST automatically cancel your private mortgage insurance. Although it does get automatically canceled it can take several years to get your principal below 78% of your home’s original value. It is a good idea to keep an eye on your loan balance and contact your lender once your balance reaches 80% of your home’s value.
Reaching below 78% of your home’s value isn’t the only way to get your PMI cancelled. Refinancing or getting a new appraisal could get your PMI canceled. Getting a new appraisal would help if you think your home’s value has increased largely. One thing that will help increase your home’s value would be home improvements that would increase it’s value. Contact your lender to run some numbers for you!
Another great way to get your PMI canceled would be through refinancing. Not only could this get your PMI possibly canceled it could also get you a lower monthly payment.
In conclusion, most people will end up needing private mortgage insurance, but you’re not stuck with it for the life of your mortgage!