Private Mortgage Insurance (PMI) can be a substantial cost for homeowners in the U.S., often adding hundreds of dollars to monthly mortgage payments. Cancelling PMI not only improves your monthly budget but also increases your home equity. Here’s a detailed guide on how to cancel PMI in the U.S. and save money.
PMI is typically required when a borrower makes a down payment of less than 20 percent of the home’s purchase price. The cost of PMI varies but can range from 0.3% to 1.5% of the original loan amount annually. Understanding these costs can help you assess whether it’s worth your while to pursue cancellation.
To cancel PMI, you first need to know how much equity you have in your home. You can calculate your equity by taking the current market value of your home and subtracting the remaining mortgage balance. As a general rule, you can request PMI cancellation once your equity reaches 20% of the home’s original appraised value.
If your home value has increased significantly since you purchased it, this can help you reach the 20% equity mark more quickly. Improvements like renovations, landscaping, or even just a hot housing market can elevate your home’s worth. Consider contacting a real estate agent for a professional valuation.
If you believe your home has appreciated enough, you can request a new appraisal from your lender. This appraisal will determine your home’s current value and is a key factor in deciding whether you can cancel PMI. Be aware that you may need to cover the appraisal cost, which typically ranges from $300 to $500.
After you’ve established that you have sufficient equity in your home, reach out to your lender. Provide them with the necessary documentation, including a copy of the new appraisal, and formally request the cancellation of PMI. Be sure to ask for specifics regarding their cancellation process.
The Homeowners Protection Act mandates that lenders must automatically cancel PMI when the borrower’s equity reaches 22% of the original property value, provided the mortgage payments are current. However, it’s still advisable to proactively check with your lender to avoid any oversight.
If you are unable to cancel PMI through the appraised value, consider refinancing your mortgage. This might come with certain costs, but if the new loan terms eliminate PMI, you could end up saving more money in the long run. Additionally, refinancing might provide you with a lower interest rate.
Maintain thorough documentation of your request, appraisal, and any communication with your lender regarding PMI cancellation. This will serve as useful evidence should any disputes arise in the future.
Once you successfully cancel PMI, the monthly savings can add up, allowing more room in your budget for other expenses or investments. Moreover, freeing yourself from PMI can give a boost to your home’s equity, enhancing your financial stability as a homeowner.
Canceling PMI is a proactive way to save money while improving your financial situation as a homeowner. By understanding your equity, making improvements, and liaising effectively with your lender, you can potentially remove this cost from your monthly payments and enjoy the benefits of increased ownership of your home.
