How to Get Rid of a PMI (Private Mortgage Insurance)

Written by Banks Editorial Team
2 min. read
Written by Banks Editorial Team
2 min. read

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Did you buy a house with less than 20 percent down? If you used a conventional mortgage to make the purchase, chances are you’re currently paying private mortgage insurance (PMI). But how can you get rid of it to keep more of your hard-earned money in your pocket? Keep reading to learn more about how PMI works and how to ax the added expense from your monthly mortgage payment. 

What is PMI (Private Mortgage Insurance)?

PMI protects the lender if you fall behind on loan payments and are forced to foreclose on the home. 

There are two forms of PMI: 

  • Borrower-Paid Mortgage Insurance (BPMI): With BPMI, the premiums are added to your monthly mortgage payment. It remains intact until you have at least 20 percent equity built up in your home and reach out to have BPMI canceled. 
  • Lender-Paid Mortgage Insurance (LPMI): The premiums won’t be included in your monthly mortgage payment. Instead, you’ll get a higher interest rate, and there’s another downside. Unlike BPMI, you won’t be able to cancel coverage once you reach 20 percent in equity unless you refinance your mortgage. However, you can choose to make a payment towards your PMI at the closing table. In this case, you’d get a better interest rate on your mortgage. But if you opt to pay your entire LPMI upfront at closing, you will get the interest rate that you would’ve qualified for had you made a down payment of 20 percent or more.

Is PMI Mandatory?

PMI, whether it’s BPMI or LPMI, is mandatory on conventional loans if you put less than 20 percent down.

If you have an FHA (Federal Housing Administration) loan, you’ll be responsible for mortgage insurance premiums (MIP) for the life of the loan if your down payment is below 10 percent. Otherwise, you’ll only pay MIP for 11 years. 

What Does PMI Cover?

As mentioned earlier, PMI protects the lender if you encounter financial hardship and default on your home loan payments. But, unfortunately, it doesn’t offer protections to borrowers. 

How Much Does PMI Cost?

PMI costs are determined by your loan type, debt-to-income ratio (DTI) ratio, down payment and credit score. Generally, you’ll pay roughly 0.1 to 2 percent of your total loan amount annually in PMI premiums. 

A higher credit score means you’ll likely pay less for PMI since the chances of defaulting on your home loan are lower. But if your credit score is on the lower end, expect higher premiums to offset the risk of foreclosure that the lender assumes. 

The same rule applies to fixed-rate loans since their monthly payments are set in stone and are far easier for mortgage lenders to estimate. But adjustable-rate mortgages come with fluctuating interest rates, which means your monthly payment will change over time. 

How to Get Rid of PMI

When the time comes, you can kiss PMI goodbye forever. Or you can refinance to get rid of PMI and give your budget some relief. Below is a closer look at each strategy and how it works. 

Wait for Automatic Cancellation

The lender may automatically move forward with PMI cancellation on your behalf once your loan is eligible. 

Request to Cancel Your PMI

Reach out to your mortgage servicer by phone or submit a written request to request PMI cancellation once you reach 20 percent equity in your home. 

Request for a New Appraisal

You can also request an appraisal to determine if your home’s value has appreciated and if you now have at least 20 percent in equity. 

Refinance Your Current Mortgage

Refinancing is also an option to get rid of PMI if your property has appreciated in value. Consider Spring EQ to help meet your home loan needs. You can choose from a rate-and-term refinance to get a lower interest rate or modify your loan term or a cash-out refinance to convert a portion of your equity into cash. 

If refinancing is an option you’d like to consider, visit Spring EQ’s website and complete the simple form to get pre-qualified. It’s simple, and there’s no obligation to move forward with the lending process.

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