PMI or Private Mortgage Insurance reduces the risk to lenders who write loans that require a low down payment (under 20%). This insurance protects the lender in case you don’t make your house payments, they repossess your house and they have to sell it for less than the balance left on the loan. Now that we know what PMI is, let’s talk about the ways we can have the bank cancel the PMI.
1.) A conventional loan with 20% or more as a down payment. The best way to get rid of PMI is to not have it from the start. If you acquire a conventional loan with 20% down, you will not have to pay PMI.
2.) Pay down the loan. Once you pay down the principle of the loan to 80% of the home’s value, you can request the bank take off the PMI.
3.) Refinance the home. If you are looking to obtain a lower interest rate that you currently have, you may also be able to cancel your PMI. Generally, an appraisal will be required to refinance your home. If the appraisal amount shows your principal balance is 80% or less than the new appraisal value, you can request your lender cancel the PMI on your home.
4.) Prove that the value of your home has risen. If the value of your home has risen and you owe 80% or less in principle of your homes new appraised value, you can request that your lender cancel your PMI. This method will require an appraisal so be ready to shell out some money for the appraisal.
There are other important criteria you must meet if you want to cancel PMI on your loan:
- Your request must be in writing.
- You must have a good payment history and be current on your payments.
- Your lender may require you to certify that there are no junior liens on your home.
- Your lender can also require you to provide evidence or an appraisal to verify the value of your home.
1.) When your principal balance is scheduled to reach 78 percent of the original value of your home, your lender is required to remove the PMI on your home.
2.) If you are current on payments, your lender must end the PMI the month after you reach the midpoint of your loan’s amortization schedule. This final termination applies even if you have not reached 78 percent of the original value of your home. The midpoint of your loan’s amortization schedule is halfway through the full term of your loan. For example, if you have a 30 year mortgage the lender will be required to cancel your PMI after 15 years have passed.