Insurance Q&A: “How to get rid of private insurance.”
Private mortgage insurance was the greatest concept since sliced bread when you purchased your home because it allowed you to obtain a mortgage without putting down 20 percent.
But by now you probably know that convenience came with a cost, and you’re probably sick of paying it.
Fortunately, you don’t need to continue paying private mortgage insurance (PMI) in certain situations.
And if you’re able to eliminate PMI from your monthly bills, you could save you a few hundred dollars per month on your overall housing costs.
Here are some potential “outs” on a private mortgage insurance policy:
1. There are a few places in the U.S where home values have increased in the past couple of years. If you’re lucky enough to live in those neighborhoods, a home value appraisal may be your way out. If your existing loan balance is less than 80% of the new appraised value…contact your lender to ditch your policy.
2. You always retain the option of simply paying your existing mortgage balance down to the magic 80% loan-to-value (LTV) mark. If your home is currently worth $100,000 and you owe $81,000, paying $1,000 extra may be enough to get it over with.
3. Improving the value of your home by remodeling can be a way out of PMI. Enough new marble and stainless steel may be able to increase your home’s value (thus lowering the LTV).
4. Remove your PMI payment by obtaining a second loan for the balance over 80%. This may very well have been an option for you when you bought the home. Make sure to do the math on this one. You don’t want to end up paying more in interest on the loan (and closing costs) than you do on the PMI.
5. Continue to pay your mortgage and let it stop automatically. Make sure to pay on time and follow all the rules. Lenders don’t technically have to cancel the PMI policy until 78% LTV is reached.
The Homeowners Protection Act of 1998 secures your right to demand it the day you hit 80%, so keep your eyes open for that.
Related: Top mortgage insurance companies.