Most people don’t know it, but there are ways to stop paying PMI (private mortgage insurance) on your existing mortgage. While a lot of lenders insist that PMI is taken out to protect their investment (which is really your regular repayments), most borrowers don’t know that there is no need to keep paying the PMI premiums for the life of the loan. This means that once you achieve a certain level of equity in your home, you are no longer required to have the PMI – and this can save you a hefty amount of money on monthly mortgage repayments.
Private mortgage insurance is a stipulation of a lot of lenders if they are providing finance for more than 80% of the purchase price of the home. This means that you must come up with the other 20% yourself if you want to avoid the PMI bills. To learn how to avoid PMI you will want to start thinking a little differently, and be willing to embrace a few new concepts. So the question is not just when can I stop paying PMI – but more frequently it’s become a question of why pay PMI at all?
While there are ways to avoid paying PMI when you first take out the loan, a lot of borrowers just aren’t in the position to avoid it, and as such must grin and bear it – adding to the regular monthly cost of their mortgage payments.
Stop paying PMI on your existing mortgage
Technically speaking, once you have your property for a little while and have built up enough equity so that you no longer owe the lender more than 80% of the value of the home, you no longer have to pay for PMI. So it really makes sense to do what you have to do to increase the value of your property as quickly as possible and also to pay off as much of the principal amount of the loan as you can. Once you have reached the required 20% equity level, then you are in a position to begin the process of cancelling the PMI altogether.
Keep in mind that this is a process that must be done correctly – it is by no means an overnight thing. Often, lenders will have a specific form or format required for requests to rescind the PMI on a mortgage. Something that they will always require is an updated valuation from an approved and accredited valuer, indicating the current value of the home. The lender will then go through the process of comparing the valuation figure to the amount owing on your mortgage and compare the two – looking for your level of equity to be greater than around about 22%.
Once you have been released from the burden of paying PMI, you may be surprised at just how much money you will be saving. On a loan of $200,000 you can expect to pay about $166 per month in PMI. That’s a significant saving for anyone, especially families on a tight budget.
If you take control of your mortgage rather than let it control you, there are ways you can save money and reduce your debt levels at the same time, you just have to look around and educate yourself. Now that you know how to stop paying PMI on your existing mortgage, what will you learn next?