nsLending is a risky business. That is why lenders establish specific measures to ensure that they get buffered from loss in case borrowers default on their loan. One of these measures is what many commonly know as a Private Mortgage Insurance (PMI).
PMI Defined
A private mortgage insurance is a sort of guarantee that is both paid upfront and monthly as part of your mortgage payments. Not all mortgages will carry a PMI; only those who paid less than 20 percent on their down payment, or those who refinancedwith less than 20 percent on their home equity.
At the event of default, the lender will foreclose your home and sell it for the purpose of raising enough money to settle the debt. But this is not always the case. In a market where home prices are depreciating and the proceeds of the home sale are barely enough to cover for other fees such as back taxes, legal fees, as well as maintenance costs, the lender usually takes losses.
When this happens, the mortgage insurer covers for the loss.
How can I get rid of PMI?
If you don’t want to carry a private mortgage insurance in your mortgage, you should see to it that you have enough cash to make the required down payment on the home, or ensure that you currently have at least 20 percent of home equity.
Once you have paid down the mortgage balance to 80 percent of the home’s original appraised value, you can ask your lender to cancel your PMI. The mortgage servicer is required to eliminate PMI when the balance drops to 78 percent.
Yes, you can get a refund on your upfront PMI payment if you did not default on your loan. You may also request for a refund on a part of your PMI policy once the coverage concludes.
The following are some tips for cancelling your private mortgage insurance:
Refinancing
If you are one of the homeowners who benefited from the recent increase in home prices which caused your equity to rise, then refinancing today could help you get rid of those additional dollars on your mortgage payments.
Additionally, if your original mortgage carries interest higher than today’s, refinancing would not only let you cut your PMI, it could also result to more savings via lowered interest.
Prepaying on your loan
Adding a little extra payment every month can go a long way in helping you pay off your mortgage balance. Remember that the cancellation only works when you’ve paid off around 80 percent of your home loan balance. The sooner you reach this threshold, the sooner you can get rid of PMI, and the more you save.
Remodeling
Adding a room, renovating your kitchen or bathrooms, or replacing some old sidings can help add value to your property. Get some remodeling done before you ask for a re-appraisal or ask the lender to recalculate your LTVratio to know when you’ll be good to request for a PMI cancellation.
Requesting for PMI Cancellation
Most lenders allow you to track your loan balance reduction throughout the life of the loan. Check your amortization schedules before forwarding your request. Upon request, your lender is then obliged to provide a response within 60 days time. The cancellation may be temporarily denied if you have late payments recently or if you have a second lien on the property. Your refund will be given upon the cancellation of the policy.
Other Considerations
Certain mortgage programs may have different rules on cancellation depending on their dispensing or insuring agencies. For example, you may have to build higher equity to be able to cancel mortgages that are considered high-risk. Or if you are requesting PMI cancellation for a rental property, you might have to keep your mortgage insurance until your loan balance is at 70 percent of your property value.
They should be able to give you a legit reason to deny a cancellation, else you have the right to file a report of non-compliance.
