If you are paying PMI (Private Mortgage insurance) you know that it can add anywhere from $50 to hundreds of dollars. PMI is required on all conventional loans with less than 20% down payments. By law, on conventional loans, the PMI is removed once the loan to value reaches 78%. This insurance is a benefit to your lender to protect them, not the borrower. Seems a shame to be paying another insurance along with the title insurance that was also on your closing statement.
Most consumers are unaware that there are other situations, besides paying the loan down to 78%, that allow one to have the PMI removed from a conventional loan. Here are some examples:
- If your loan is owned by Fannie Mae you can request that the PMI be dumped when your loan reaches 80% loan to value.
- Fannie Mae allows cancellation of PMI in the case of a prepayment to reduce the loan to value to 80%. This pre-paid amount is applied toward the loan amount and no appraisal is necessary because the value used for the PMI was the value when it was bought.
- If your mortgage is owned by Freddie Mac the same rule applies except that the pre-payment is not applied toward the principle.
- You can request Freddie Mac cancel the PMI when your loan to value reaches 80% but an appraisal is required.
- Your lender must cancel the PMI at the half-way point of the life of the loan, i.e. at year 15 for a 30 year loan and 7.5 years for a 15 year loan.
- If improvements increase the value enough to lower the loan to value to $75, you can request the PMI be removed. An appraisal is required.
- A loan must be 24 months old before you can request a cancellation. Between 24 – 72 months you can request to cancel if your loan to value is 75% or less.
It’s recommended you ask your mortgage broker to calculate the date that you can apply for removal of PMI. Don’t rely on an amortization chart. Or you can use the PMI Terminator. For $99 and the info required your date for requesting your lender to cancel PMI is scheduled and planned to save you a significant amount of money even if it’s only 2 years ahead of schedule.
First-time homebuyers earning less than $75,000/year made up most of the 750,000 borrowers that had PMI added to their mortgages in 2015.