Are you tired of paying PMI and know that you qualify to get rid of it but don’t want to refinance? Luckily, there are a few other ways that you can get rid of PMI that won’t cost you money, or at least won’t cost as much as a refinance.
Pay Your Balance Down
You pay PMI until you owe less than 80% of the home’s value. Your lender calculated when this point would occur based on the purchase price of the home and your monthly payments. You can reach that point sooner though, if you pay the mortgage balance down faster.
There are a couple of ways that you can pay your mortgage balance down:
- Make a lump sum payment so that your mortgage balance is less than or equal to 80% of the home’s value
- Make extra payments each month toward the mortgage to get your balance paid down faster
Once you owe less than 80% of the home’s original value, you can request that the lender eliminate the PMI from your mortgage.
Getting the PMI Eliminated
If you pay your balance down enough, you must follow the procedures to get your lender to remove the PMI from your payment:
- You must make the request in writing
- You must be current on your mortgage payments
- You should have on-time mortgage payments for the last 12 months
- You may need to pay for an appraisal
Some lenders require a new appraisal to ensure that your home value hasn’t decreased. This is only common in areas that lenders know have had value issues recently. Typically, lenders can run an automatic valuation on your home, which gives them an estimated value of your home and doesn’t cost you any money.
Waiting Until you Owe 78% of the Home’s Original Value
Under the Homeowner’s Protection Act, lenders are required to cancel your PMI when you owe less than 78% of the home’s original value.
In this case, you don’t have to do anything. While it does benefit you to get the PMI canceled at 80% of the home’s value, it requires some work on your part. If you miss that opportunity, at 78%, you don’t have to do a thing. The lender must remove the PMI, which automatically lowers your payment. You aren’t obligated to prove your home’s value or anything. As long as you made your payments and got the balance down, the PMI will go away.
Paying for a New Appraisal
In some unique circumstances, homes appreciate enough to get the PMI eliminated without making extra payments or refinancing. But it does require some work on your part.
First, you must find out the new value of your home. Before you pay for an appraisal, talk with a local real estate agent or appraiser. Get a feel from them regarding the values in the area. Did homes appreciate as much as you’ve heard? If they have, you may want to take the next step and get the appraisal. If the appraisal confirms the higher value, you may end up with the ability to cancel your PMI earlier.
You’ll have to follow the same steps you did above, by requesting the cancellation of PMI in writing. Lenders aren’t obligated to follow a home’s appreciation and depreciation. Instead, it’s up to you to bring it to their attention that the home’s value appreciated and that you owe less than 80% of its new value, which means you may be eligible to cancel your PMI.
As is the case if you paid the mortgage down, though, you must be able to prove timely mortgage payments. If you are behind on your payments, a lender may not feel comfortable eliminating the mortgage insurance from your loan because you still pose a high risk of default.
Of course, if none of these options works for you, there’s always the option to refinance. You should only do this if you will stay in the home long enough to enjoy the savings, though. Refinancing can cost as much as 3% to 5% of the mortgage amount in closing costs. Make sure that it is worth it to pay those costs – in other words, make sure you will stay in the home long enough to enjoy the savings.