What is PMI?
Can I get rid of the PMI on my loan?
PMI or Private Mortgage Insurance is normally required when you buy a house with less than 20% down. Mortgage insurance is a type of guarantee that helps protect lenders against the costs of foreclosure. This insurance protection is provided by private mortgage-insurance companies. It enables lenders to accept lower down payments than they would normally accept. In effect, mortgage insurance provides what the equity of a higher down payment would provide to cover a lender's losses in the unfortunate event of foreclosure. Therefore, without mortgage insurance, you might not be able to buy a home without a 20% down payment.
The cost of PMI increases as your
down payment decreases. Example: The cost of PMI on a 10% down
payment is less than the cost of
PMI on a 5% down payment. Your PMI premium is normally added
to your monthly mortgage payment.
The decision on when to cancel
the private insurance coverage does not depend solely on the
degree of your equity in the
final say on terminating a private mortgage-insurance policy
is reserved jointly for the lender and any investor who may
an interest in the mortgage. However, in most cases, the
lender will allow cancellation of mortgage insurance when the loan
is paid down to 80% of the original property value. Some
may require that you pay PMI for one or two years before
you may apply
to remove it.
To cancel the PMI on your loan, contact
your lender. In most cases, an appraisal will be required to determine
the value of your property.
You will probably also be required to pay for the cost
of this appraisal. Another way of cancelling the PMI on your loan is to refinance and to get a new loan without PMI.