Posted by Marie Presti on 2/2/2018

 
 

Mortgage loans for more than 80% loan-to-value typically require private mortgage insurance (PMI). This type of insurance reimburses the lender if a borrower defaults on a loan. However, PMI is expensive, and homeowners should be aware of how to remove it when certain conditions have been met.
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A borrower can request in writing for the lender to cancel the PMI, when the mortgage balance has reached 80% of the home’s original appraised value. (Many people don't realize this, but the lender is required to eliminate the PMI when the balance reaches 78%. So it's a good idea to monitor this, especially if additional principal contributions are being made to pay off the loan early.)

I followed this process myself with my Newton home many years ago, and was able to get the PMI removed. It saved me over $150 a month off my mortgage payment.


Other methods to eliminate PMI sooner (than through normal amortization) include:


  • If the value of the home has increased, the owner may consider refinancing with a loan that does not require PMI. There will be refinancing charges involved, but you can determine how long it will take to recapture those costs from the monthly savings.

  • Some lenders will consider using a new appraisal to verify that the home’s mortgage is below the 80% requirement. Find out in advance from your lender if they will accept this procedure and get the names of approved appraisers they will recognize. The cost of an appraisal could range between $450 to $600.

  • Another strategy is to make additional principal contributions on a regular basis to reduce your mortgage balance to 78-80% level that would allow the lender to eliminate the PMI.

Mortgage insurance is not required on VA loans regardless of the loan-to-value. FHA mortgages made after June 3, 2013 are required to have Mortgage Insurance Premium (MIP) for the life of the loan. For FHA loans made prior to that date, the MIP should automatically cancel when the loan-to-value ratio reaches 78% and has been in effect for a minimum of five years.


To obtain additional information specific to cancelling your mortgage insurance, contact information can usually be found on the annual statement provided by your mortgage servicer.


If you are thinking of doing this, feel free to reach out to me at The Presti Group ahead of time. I can do a pricing analysis that can be given to your bank's appraiser, to help with justifying the equity in your home.  I'm always happy to help reduced my client's mortgage payments!





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