Private Mortgage Insurance: What Is PMI, and Can You Drop It?
Private Mortgage Insurance, often called PMI, is one of those things many homeowners pay each month but may not always think about.
If you bought your home with less than 20 percent down, there is a good chance PMI was added to your monthly mortgage payment. It is a common part of many conventional loans, but the good news is that PMI does not always have to stay there forever.
So, what exactly is PMI, and how do you know if you may be able to remove it?
What Is PMI?
PMI is insurance that protects the lender, not the homeowner, if a borrower stops making payments on the loan.
Even though it protects the lender, the homeowner is usually the one paying for it as part of the monthly mortgage payment. PMI is typically required when a buyer puts less than 20 percent down on a conventional loan.
For many buyers, PMI can make it possible to purchase a home sooner instead of waiting years to save a larger down payment. But once you have built enough equity in your home, it may be worth looking into whether that extra monthly cost can be removed.
Can PMI Be Removed?
In many cases, yes.
PMI removal depends on your loan type, your current loan balance, your payment history, your home’s value, and your lender or loan servicer’s specific requirements.
Generally, homeowners may be able to request PMI cancellation once they have reached a certain amount of equity in the home. For some loans, PMI may also be scheduled to fall off automatically once the loan balance reaches a certain point, as long as the loan is current.
That said, every loan is a little different, so it is always best to check directly with your loan servicer to understand their exact process.
Why Your Home Value Matters
If your home has gone up in value since you purchased it, you may have more equity than you realize.
Equity is the difference between what your home may be worth today and what you still owe on your mortgage. If values in your area have increased, or if you have made improvements to your home, your equity position may have changed.
This is where it can be helpful to get an idea of your current market value. A real estate professional can help you look at recent comparable sales and give you a better understanding of where your home may stand in today’s market.
What Steps Should You Take?
If you think you may be close to removing PMI, here is a simple place to start:
First, check your current mortgage balance. This will help you understand how much you still owe on the home.
Next, get an idea of your current home value. If your home has appreciated, you may be closer to the equity needed for PMI removal than you think.
Then, contact your loan servicer. They can tell you what they require, whether that is a written request, payment history review, appraisal, broker price opinion, or other documentation.
It is also important to ask whether your loan is a conventional loan or another type of loan, such as FHA, because mortgage insurance rules can be different depending on the loan.
Is It Worth Looking Into?
If PMI is part of your monthly payment, it may absolutely be worth asking questions.
Removing PMI, when possible, could lower your monthly mortgage payment and help you keep more money in your pocket. Even if you are not quite there yet, understanding your home’s current value and your loan balance can help you know what to watch for moving forward.
Not Sure Where to Start?
If you are wondering whether your home value may have increased enough to make PMI removal worth exploring, I am always happy to help you take a look.
I can give you an idea of your current market value, help you understand where things may stand, and point you in the right direction so you can follow up with your loan servicer.
Every loan is different, but sometimes asking the right questions can make a real difference.
If PMI is something you are currently paying, this may be a good time to take a closer look.