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Buying a home is one of the biggest purchases you can make — and if your down payment is less than 20%, you’ll be stuck paying private mortgage insurance (PMI).
PMI can add between $30 and $70 to your mortgage payment every month for each $100,000 borrowed. So, if you borrow $250,000, you could end up paying as much as $175 extra each month.
Here’s what you need to know about PMI:
5 ways to get rid of PMI
If you’re wondering how to get rid of PMI, there are some different strategies you can try.
Wait for automatic cancellation
Many lenders will automatically cancel your PMI when you reach 78% loan-to-value (LTV) on your home. Additionally, lenders are required to cancel your PMI halfway through your loan term.
When your mortgage balance reaches 80% LTV you can get rid of PMI by asking for a cancellation from your lender. The thinking is that a 20% down payment automatically gets you to an 80% LTV on your loan, so when you reach that point, you have enough “skin in the game” that you’re less likely to default on your mortgage. If you have the resources, you can pay down your loan with a lump sum to get rid of PMI. Figure out how much you need to pay to get your mortgage to 80% LTV and pay that amount. Just make sure it won’t cause you financial hardship to do so. For homes that have increased in value, the answer to, “When can I get rid of PMI?” might be, “Earlier than you think.” If your home is worth enough to bring your LTV to 80%, you can apply to have your PMI canceled. Finally, you can use a mortgage refinance to get rid of PMI. When you refinance your home, you might end up with a lower LTV, and that can provide you with a way to get rid of PMI. In fact, depending on the situation with your FHA loan, refinancing might be your only option for how to get rid of PMI on an FHA loan. Not only can you save on PMI, but you might be able to save on your monthly payment and save in interest when you refinance your home loan. Learn More: When to Refinance a Mortgage Mortgage refinance rates are near record lows, so this might be a good time to reap the savings. Refinancing with bad credit, though, might not be as beneficial. PMI is an insurance policy charged by mortgage lenders to protect themselves if you default on your home loan. Many lenders will add mortgage insurance if your down payment is less than 20%. For the most part, your PMI payments, which usually cost between 0.3% and 1.5% of the amount borrowed, are added to your mortgage payment. Later, you can apply to get rid of PMI, but it doesn’t work for every type of loan. While paying PMI can allow you to buy a home with a lower down payment, it also costs you money. The sooner you can get rid of PMI, the better off you’ll be. To lower your costs further, make sure to shop around for refinance rates. Credible lets you easily compare real, prequalified rates from all of our partner lenders in the table below. Request PMI cancellation when you reach a mortgage balance of 80%
Pay down your loan
Get a new appraisal
Refinance your home loan
What is private mortgage insurance?
Lower your monthly costs
