Mortgage Insurance Rates Too High? Here’s How to Break Free



If you bought a house in the last few years and didn’t make a downpayment of at least 20%, chances are you’re paying private mortgage insurance, or PMI. It’s an added expense that does nothing for you as the homeowner, but it does protect the lender from a loss if you can’t make payments on your loan.

Clearly, PMI doesn’t benefit you as the borrower. So if you’re wondering how to get rid of PMI on your mortgage, we’re here to help. Here are a couple of ways you can stop making private mortgage insurance payments on your loan.

 

Track Your Home’s Value

The Homeowners Protection Act requires that lenders remove PMI from your loan after your loan balance has fallen to 80% of your home’s original purchase price. Explained another way, if you have built up 20% equity in your home, you should be able to remove PMI from your loan. If you have an FHA loan, however, this doesn’t apply to you. PMI is required on these mortgages for the life of the loan.

Beyond FHA loans, however, it’s possible to get rid of PMI even before your loan balance reaches 80% of your original purchase price. You also can request that PMI be removed if your home has appreciated in value to the point that your mortgage balance is at 80% or less of your home’s current value.

That’s why it can really pay to keep an eye on property values in your area and consider an appraisal if you think you’re getting close to that 80% mark. Keep in mind though, that you’ll have to pay pay for the appraisal, which could cost several hundred dollars depending on the kind of appraisal your lender requires. You can use an online service like Zillow to get an idea of your home’s current value, or you can have a Realtor come out and estimate the value of your property before getting an official appraisal.

If you’ve just taken out a mortgage and are paying PMI but would like to stop doing so as quickly as possible, you could also consider ways to pay down your mortgage balance more quickly.

 

Consider Refinancing

If asking your lender to remove PMI isn’t an option, you could always refinance using a loan without PMI. This option really only makes sense if the current lending rate has fallen from when you first took out your mortgage.

Certainly, you wouldn’t want to refinance just to get rid of PMI, but it doesn’t take a big drop in rates for this option to make sense. A change of as little as a quarter percent combined with the elimination of your mortgage insurance rate can still save you money. There will, of course, be costs associated with the refinancing, so it’s a good idea to review with a lender whether it makes financial sense for you to move forward.

 

Managing Your Debt

If you weren’t able to save enough money for a downpayment on your home because you’re carrying large amounts of credit card or student loan debt, it may be time to look at ways that you can start paying down that debt faster than you ever thought possible. Once you’re at a point that you’re paying off your credit card balances every month, you can start to pay off your mortgage even faster.

Remember, high interest rates, especially on credit cards, can make your debts balloon quickly and have a negative impact on your overall financial health (here’s a great tip for paying down your credit card debt faster). They can even keep you from securing the best rates on things like mortgages and auto loans. If you’re carrying debt and don’t see a way to pay it off anytime soon, you can check out our explainer on how to pay down your debt quickly.

 

[Editorial Disclosure: PayDownMyDebt.com is a service that provides people with tools to pay down their debts through automatic payments. The purpose of this article, however, is not to encourage users to purchase that service. This article is educational and journalistic in nature and aims to help people learn how to pay down their debt, whether they use our site, another, or go it alone.]