Private Mortgage Insurance (PMI) is often required by lenders when a homebuyer makes a down payment of less than 20% of the home’s purchase price. While PMI serves as a protection for the lender in case the borrower defaults on the loan, it’s an additional cost for the homeowner. However, there are steps you can take to cancel PMI and potentially save money over the life of your mortgage. Let’s explore how you can go about canceling PMI:
1. Understand Private Mortgage Insurance PMI Cancellation Requirements
Before taking any action, it’s important to understand your lender’s PMI cancellation requirements. Review your mortgage agreement, loan documents, and any other information provided by your lender to determine when you’re eligible to cancel PMI.
2. Reach the Required Loan-to-Value (LTV) Ratio
Lenders often have specific LTV ratio requirements that must be met before you can cancel PMI. The LTV ratio is the ratio of your loan amount to the appraised value of your home. Once you reach an LTV ratio of 80% or lower (meaning you’ve paid off at least 20% of the home’s value), you may be eligible to cancel PMI.
3. Pay Down Your Mortgage
One of the most straightforward ways to reach the required LTV ratio is by paying down your mortgage. Make extra principal payments whenever possible, and consider directing windfalls, such as tax refunds or bonuses, toward your mortgage balance.
4. Home Value Appreciation
If your home has appreciated in value due to a strong real estate market, you may reach the required LTV ratio without actively paying down your mortgage. Keep an eye on local home prices and consult a real estate professional to assess your home’s current value.
5. Request a Property Appraisal
When you believe you’ve reached the necessary LTV ratio, contact your lender and request a property appraisal. The appraisal will determine the current value of your home, and if the LTV ratio is indeed at or below 80%, you can use this appraisal to support your request for PMI cancellation.
6. Gather Required Documentation
Your lender may require documentation to process your PMI cancellation request. Be prepared to provide proof of the home’s current value, recent payment history, and any other information requested by your lender.
7. Submit a Private Mortgage Insurance PMI Cancellation Request
Submit your PMI cancellation request to your lender along with the required documentation. Follow up to ensure that your request is being processed and that all necessary steps are being taken to cancel PMI.
8. Automatic Private Mortgage Insurance PMI Termination
In some cases, your lender may be required by law to automatically terminate PMI once you reach the midpoint of your loan term, even if your LTV ratio hasn’t reached 80%. This is known as automatic PMI termination and is regulated by the Homeowners Protection Act (HPA).
9. Finalize Private Mortgage Insurance PMI Cancellation
Once your lender approves your PMI cancellation request and confirms that you’ve met the necessary requirements, they will provide written confirmation of PMI cancellation. Review this documentation carefully and keep it for your records.
10. Monitor Your Mortgage Statements
After PMI cancellation, review your mortgage statements to ensure that the PMI premium is no longer being charged. If you notice any discrepancies or continue to see PMI charges, contact your lender immediately.
Remember Your Rights
The Homeowners Protection Act (HPA) provides certain rights to homeowners regarding PMI cancellation. Familiarize yourself with these rights and guidelines to ensure a smooth and transparent PMI cancellation process.
In Conclusion
Canceling private mortgage insurance can be a smart financial move, leading to potential savings over the life of your mortgage. By understanding your lender’s requirements, actively paying down your mortgage, and following the steps outlined above, you can work toward the goal of PMI cancellation and enjoy the benefits of a reduced monthly payment.
