Mortgage insurance can be a significant additional cost for homeowners, often weighing down monthly mortgage payments. If you're looking to eliminate mortgage insurance on your loan in the U.S., there are several strategies you can employ to navigate this expense effectively.
1. Understand Your Mortgage Insurance Type
Before you can eliminate mortgage insurance, it’s important to understand the type you have. There are two main types of mortgage insurance: Private Mortgage Insurance (PMI) and government-backed insurance such as FHA insurance. Knowing which type applies to your loan will influence the steps you should take.
2. Reach the Equity Threshold
Most lenders require borrowers to pay PMI until they reach a minimum equity threshold, usually 20% of the home’s value. If your mortgage balance is low enough compared to your home’s current market value, you might be able to request the elimination of PMI. Regularly check your home’s value through a reputable online valuation tool or by consulting a local real estate agent.
3. Request a PMI Cancellation
Once you believe you have reached the required equity threshold, contact your lender to request a PMI cancellation. You'll likely need to provide evidence of your home’s current value, which may necessitate a home appraisal. Be prepared to cover the costs of the appraisal.
4. Refinance Your Mortgage
If you haven’t reached the 20% equity mark but your home's value has increased significantly since your purchase, refinancing your mortgage might be an enticing option. By refinancing, you can potentially secure a lower interest rate and eliminate the PMI requirement if your new loan amount is under 80% of the updated home value.
5. Make Extra Payments Towards Your Principal
Making extra payments towards your mortgage principal can reduce your mortgage balance faster and help you build equity more rapidly. Check with your lender about how additional payments are applied and ensure they go toward the principal.
6. Monitor Your Loan Progress
Keep track of your mortgage statements and maintain an eye on your equity levels. Being proactive means you can act swiftly when the opportunity to eliminate mortgage insurance arises. Many lenders automatically cancel PMI when you reach a certain equity level, but it’s advisable to initiate the process yourself.
7. Opt for a Piggyback Loan
If you're still in the home-buying process or considering purchasing a new home, a piggyback loan might be an option. This approach involves taking out two loans simultaneously—one for 80% of the home’s price, and a second loan for 10-15% to cover the down payment, which can help avoid PMI altogether.
8. Stay Informed on Lender Policies
Lender policies regarding mortgage insurance can vary. Some lenders may have specific criteria or timelines for automatically removing PMI. Always stay informed about your lender’s policies and don't hesitate to ask questions that can help you strategize effectively.
Eliminating mortgage insurance can save you a substantial amount of money over time, increasing your monthly cash flow. Whether you opt to request a cancellation, refinance, or make extra payments, being knowledgeable and proactive will position you to successfully remove this cost.
