So, you don’t like the idea of making those extra mortgage insurance payments? Here are a few ways to eliminate mortgage insurance altogether:
Appraisal
If the value of your home has risen in recent years you may be able to terminate your mortgage insurance. Once the equity in your home falls below the 80 percent loan-to-value-ratio required by your lender, you can eliminate your private mortgage insurance. You would, of course, have to present your lender with a valid home appraisal before final termination. The costs associated with getting an appraisal may or may not be worthwhile, depending on your unique
mortgage situation.
Remodel
It’s the same principal as above. By making home improvements, you’re increasing the market value of your house, getting you that much closer to the all-important 80 percent “LTV” level.
Pay down your mortgage
Paying down your mortgage may also be a viable option. Making even small additional payments each month can make a big difference over time. Once you get that loan-to-value-ratio below 80 percent, you’ll no longer be required to
make PMI payments.
Piggyback loan
Utilizing a piggyback loan such as a “80/20 loan” will allow you to avoid private mortgage. insurance. And by doing so, you typically avoid any “out of pocket” down payment, with the added benefit of a tax deduction. By piggybacking a second mortgage onto your first mortgage, you’re achieving the desired 80% LTV” on the first mortgage, and avoiding the PMI. The downside with these types of mortgage vehicles is that the second mortgage usually comes at a substantially higher interest rate, making PMI savings negligible. However, by utilizing a 80/10/10 type loan with the last 10 percent going towards the down payment, you’ll often pay less than a straight loan with mortgage insurance.
Automatic termination
Thanks to The Homeowner’s Protection Act (HPA) of 1998, you have the right to request private mortgage insurance cancellation when you reach a 20 percent equity in your mortgage. What’s more, lenders are required to automatically cancel PMI coverage when a 78 percent loan to value is reached. Some exceptions to these provisions, such as liens on property or not keeping up with payments, may require further PMI coverage.
Without a doubt, private mortgage insurance has proven invaluable for families trying to attain the American dream of homeownership. It affords these individuals an opportunity that isn’t always easily achieved in this otherwise inflated real estate market. Paying more or longer than needed isn’t prudent, however, and it’s highly recommended that all steps be taken to avoid unnecessary payment. Knowing when to cancel can save you thousands, so make sure to utilize all the resources available to you and cancel when you reach the proper equity level, otherwise, it’s just money down the drain.
