Mortgage

Do away with PMI and decrease your mortgage cost

Remove your mortgage insurance for good

PMI is a huge cost to homeowners –
often an extra $ 100 to $ 300 per month.

Fortunately, you are not tied to PMI
forever.

Once you've built up some equity
In your home, there are several ways to get rid of PMI and lower your monthly worth
Payments.

Some homeowners can simply request it
PMI cancellation; others have to refinance themselves into a loan that doesn't
Need mortgage insurance.

With mortgage rates close to historic
Lows, it's a wise time to get rid of your PMI and get a lower rate at the
same time.

Check your eligibility to remove PMI (November 6, 2020).

In this article (jump to …)

Four Ways To Get Rid Of PMI

Understandably, most homeowners would prefer not to pay for personal mortgage insurance (PMI).

Fortunately, there are several ways you can get rid of PMI if you have permission. Not all homeowners need to get refinancing to get rid of mortgage insurance.

Wait for the PMI to automatically drop – For traditional loans, the PMI will automatically drop as soon as the loan balance is at or below 78% of the estimated home valueRequest PMI cancellation – With traditional loans, you can request PMI removal at 80% loan-to-value ratio instead of waiting for the PMI to drop at 78%.Refinance into a conventional loan without PMI – FHA borrowers can refinance to a traditional no-PMI loan once their mortgage balance reaches 80% loan-to-value ratioRefinancing to a No-PMI Mortgage – For loans that have not reached the LTV of 80%, a special loan program without PMI may be able to be refinanced

Homeowners with conventional loans have the easiest way to get rid of PMI. This mortgage insurance cover expires automatically as soon as the loan reaches a loan-to-value ratio of 78% (i.e. you have 22% equity in the home).

Or the homeowner can request it
PMI is removed at 80% LTV instead of waiting for it to be removed
automatically when home equity reaches 22% (78% LTV).

When you request PMI removal, the
The loan-to-value ratio can be calculated based on the original purchase of your home
Price or based on your original home valuation (whichever is lower).

Or if your home has value
If you've gone up, you may be able to order another review and remove the PMI based on your value
current value of the house.

The process can vary depending on the loan
Talk to your service engineer to find out more about your options.

How to Refinance to Get Rid of PMI

Removing mortgage insurance is not as easy for homeowners with FHA loans as it is for homeowners with traditional mortgages.

If you have a mortgage that is covered by the Federal Housing Administration (FHA), your mortgage insurance (called MIP) does not automatically expire.

MIP typically lasts the entire life of the loan – or 11 years if you've paid a 10% or more down payment.

However, FHA homeowners still have the option to get rid of mortgage insurance.

One way to get rid of PMI is to refinance your mortgage.

"With enough equity built on your property, refinancing from an FHA or conventional loan to a new conventional loan would eliminate MIP or PMI payments," said Wendy Stockwell, vice president of operations support and product development for Embrace Home Loans .

"You can do this as long as your LTV is 80% or less."

"After sufficient equity is built on your property, refinancing … a new conventional loan would eliminate MIP or PMI payments." -Wendy Stockwell, Vice President, Embrace Home Loans

Stockwell notes that it is also possible to refinance into another program – one that does not require a MIP or PMI, even if the LTV is over 80%.

Here are just a few examples of mortgage loan programs that don't require mortgage insurance *:

Neighborhood Assistance Corporation of America (NACA) Best in America Mortgage Bank of America Affordable Loan Solution® MortgageCitiMortgage HomeRun mortgage

* Programs that were current at the time of this writing. Loan programs can change.

"The interest rate (for non-compliant loan products) can be slightly higher than a traditional loan," says Stockwell.

"But eliminating mortgage insurance payments will ultimately reduce your monthly mortgage payment."

Find Out If You Can Refinance PMI (November 6, 2020)

How much can you save by refinancing without a PMI?

Refinancing without a PMI can result in huge savings depending on your current interest rate and loan balance. Take a look at an example:

Original Mortgage (FHA)
Refinanced mortgage (conventional)
Credit balance
$ 195,000
$ 200,000
interest rate
4.25%
3.75%
Mortgage insurance
$ 138 / month
$ 0
Monthly payment *
$ 1,150
$ 930
savings
– –
$ 220 / month

* The monthly payments shown here only include principal and interest and are intended for example purposes. Your own payments will vary.

"Let's say your current home value is $ 250,000," said Mike Scott, senior mortgage lender at Independent Bank.

“You have an FHA loan with a current balance of $ 195,000 and an interest rate of 4.25%. And you still have 27 years for the loan. "

Scott points out that the monthly principal and interest you pay on this loan is just over $ 1,000. "But the MIP you have to pay brings in another $ 140 a month."

You decide to refinance a new $ 200,000 conventional loan. Your rate is 3.75% for 30 years. For example, suppose the new mortgage rolls the closing costs and other prepaid items into the loan.

"You're starting over with another 30 year loan. But now your monthly principal and interest payment is $ 930 per month with no MEP required. That's a saving of (over $ 200) per month – at least at first, ”says Scott.

Check your new plan (November 6, 2020)

What should be considered before refinancing from mortgage insurance?

That doesn't mean that a PMI refi or FHA refi will always be the right move.

"Refinancing to eliminate PMI requires the payment of graduation fees, which may include host fees," said Keith Baker, mortgage banking program coordinator and faculty at North Lake College.

"You need to make sure that the refinance doesn't cost you more than you save." –Keith Baker, North Lake College Mortgage Banking Program Coordinator

Also, be aware that refinancing a new FHA loan can have an upfront cost that can outweigh your savings.

“With an FHA loan, you pay your MEP upfront. If you refinance an FHA loan after 3 years, you have to prepay that MEP again, "warns broker and real estate attorney Bruce Ailion.

Ailion continues, “You should perform a savings versus cost calculation to determine how long it will take for the savings to cover the cost of the new loan. If it is taking longer than you are likely to be staying home, refinance is probably not a wise decision. "

"You should do a savings versus cost calculation to see how long it will take for the savings to cover the cost of the new loan." –Bruce Ailion, real estate attorney

Another restriction? If you still owe more than 80% of the value of your existing home, refinancing may not be as beneficial.

"If your credit score is below 700, be aware that traditional Fannie Mae and Freddie Mac loans require price adjustments at the credit level," added Scott. "This could increase the new interest rate compared to what you are currently paying."

Check your new plan (November 6, 2020)

Eliminate private mortgage insurance (PMI) for conventional loans

If you have a traditional loan and your down payment was less than 20%, you are likely paying for personal mortgage insurance (PMI).

Stockwell says borrowers must pay PMI for conventional loans "when more than 80% of the equity is borrowed in the home".

“PMI is paid out either monthly or as a full premium payment at the time of closing,” she explains.

However, there is a key difference between mortgage insurance and other popular types of insurance.

Banks and lenders charge PMI or MIP to protect their interests – not yours.

"It protects lenders in the event that you potentially default on your credit," says Baker. That means any possible withdrawal would go to your mortgage lender.

In general, the PMI will automatically drop either when your credit-worth ratio hits 78% or when you hit the middle of your credit life.

Typically, to cancel PMI, "you need to hit 80% mortgage lending value (LTV)," says Scott. "The PMI will automatically drop once your LTV reaches 78%." He adds that it usually takes into account the original value of your home.

Alternatively, at your request, the PMI can be canceled once the equity in your home reaches 20% of the purchase price or estimated value.

“Or the PMI will end once you have reached the midpoint of your payback. For a 30 year loan, the PMI should be automatically canceled mid-15 years, ”says Baker.

Eliminate Mortgage Insurance Premium (MIP) on FHA loans

In contrast to private mortgage insurance, the mortgage insurance premium (MIP) is only charged for FHA loans.

“MIP payments are split up. First of all, you pay an initial upfront premium when you sign up. The remaining premium will be written off monthly over the life of your loan, ”Stockwell says.

MIP must be paid for the life of the loan for FHA mortgages with a LTV greater than 90%. With an LTV of 70% to 90%, this must be paid for 11 years.

Note that FHA loans with LTV ratios between 70% and 90% of the MEP must be paid for 11 years.

“However, if the LTV is 90.01% or more, the MEP must be paid for the life of the loan. So if you have a 91% LTV and a 30 year FHA loan, for example, you're paying MIP for 360 payments, ”Stockwell says.

This only applies if you refinance or repay your mortgage early.

If you have an FHA loan and you are building more than 30% equity in your home before the required 11 year MIP period has expired, a refinance can help you cut insurance costs early on.

Frequently asked questions about PMI removal

How can I get rid of PMI without losing 20%?

If you're in the process of buying a loan, you can avoid PMI by choosing a special no-PMI loan or by getting an 80/10/10 “piggyback loan” that simulates a 20% down payment. If you already have a mortgage with PMI, you may be able to refinance into a no-PMI loan.

Can you get rid of PMI with a new rating?

When you refinance to get rid of PMI, the refinancing process includes a new property value to check if your loan is below 80% LTV. For homeowners on a traditional mortgage loan, if your home value has increased so much that you are getting more than 20% equity, you may be able to get rid of PMI with a revaluation. However, some credit service providers will only re-evaluate the PMI based on the original rating. Therefore, contact your service technician directly to find out more about your options.

Can You Get Rid of Mortgage Insurance for an FHA Loan?

All FHA loans include MIP (the type of mortgage insurance that is exclusive to FHA loans). However, if you have sufficient home equity (at least 20%), you can refinance your FHA loan into a traditional no PMI loan.

Is Mortgage Insurance a Waste of Money?

PMI (or MIP for FHA loans) is usually worth your money if you can use it to buy a home sooner. Almost all mortgage programs with less than 20% less require mortgage insurance. This is why mortgage insurance is popular with home buyers who don't want to wait years to save a large down payment. Remember, mortgage insurance is not permanent. You can remove or refinance it later.

Never Get PMI Money Back?

PMI awards are non-refundable. Think of it like your car insurance: you pay premiums, and the insurer only pays out when something bad happens. However, your mortgage insurance will not protect you. It protects your lender. So the homeowner never sees any money back from their PMI.

The only exception to this rule concerns the rationalization of FHA refinancing. As a homeowner who refinances an existing FHA loan into a new FHA loan within three years, they may receive a partial refund of the MIP upfront payment on the original loan. Qualifying for this loan is usually straightforward if you have a good payment history over the last three consecutive months.

Is it worth refinancing to cancel mortgage insurance?

It pays to refinance to remove PMI mortgage insurance if your savings outweigh your refinance completion costs. The current low interest rate climate offers the opportunity to get out of a loan with higher interest rates and at the same time remove the mortgage insurance. However, you still need to consider how long you want to stay in the house after refinancing. If it's only a few years, you might be spending more on refinancing than you are saving. However, if you stay in the house for 5 or more years, refinancing from the PMI is often worthwhile. It may also be worth it if you can get a refinancing with no closing costs or have closing costs included in your loan balance.

How much does PMI cost for a $ 200,000 loan?

On average, PMI costs 0.5% to 1.5% of the loan amount annually. That means that for a $ 200,000 loan, the PMI would cost about $ 1,000-3,000 each year. Or $ 83 to $ 250 a month. The PMI rates depend on your creditworthiness and the size of your down payment.

Does a second mortgage also require PMI?

A second mortgage such as a home loan or home line of credit should not require additional PMI payments. The PMI only applies to your home's original lien. In fact, a second mortgage can even help you avoid PMI by covering part of your home purchase down payment through the 80-10-10 "piggyback" mortgage option.

Is the PMI based on the home's original selling price or the home's current value?

Different loan service providers use different strategies to determine your loan-to-value ratio (LTV). Some calculate the LTV based on the original purchase price of your home. others rely on your original home valuation. You can also pay for a revaluation if the current value of your home has increased since it was first purchased. An appraisal can cost up to $ 500, but the fee would be worth it if the current value of your home shows you have 20% home equity – enough equity to void the PMI on a traditional mortgage.

Do USDA or VA loans require PMI?

USDA loans require their own mortgage insurance. It tends to be more affordable than the FHA's MIP requirements. VA loans do not require ongoing mortgage insurance. VA borrowers pay a VA upfront financing fee. Only active service members and veterans can take advantage of a VA loan.

Will a Lender Automatically Cancel PMI?

The Homeowners Protection Act of 1998 requires lenders to disclose mortgage insurance requirements to home buyers. The law mandates that loan servicers must automatically cancel PMI if your LTV drops to 78%. You can request a PMI cancellation if the LTV drops to 80%.

How is the LTV calculated?

You can find your credit-worth ratio by dividing your current mortgage balance by your property value and then multiplying that answer by 100. For example, if you owe $ 175,000 and your house is worth $ 200,000, dividing $ 175,000 by $ 200,000 would get 0.875. Multiply that answer by 100 and you get your LTV: 87.5%. The owner of this home would have to pay back the mortgage balance to $ 160,000 to achieve an 80% LTV, which is low enough to apply for a PMI cancellation on a traditional loan.

What if my credit servicer doesn't cancel the PMI even after reaching an LTV of 80%?

Check your numbers first. Your credit servicer may use your original purchase price to calculate LTV. You may need a new appraisal to show that the current value of your home has increased since your original appraisal or sale price. If you believe your credit servicer is violating Homeowner Protection Act, report your experience to the Consumer Financial Protection Bureau.

Check your eligibility for refinancing

By refinancing to get rid of PMI, you can cut your mortgage costs significantly.

In addition to eliminating mortgage insurance, you could potentially cut your interest rate significantly and save interest over the life of the loan.

Today's interest rates are at historic lows. Hence, it is a good time to get rid of personal mortgage insurance and get a lower payment.

Check your new plan (November 6, 2020)

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