PMI: What Is It? & How Can I Get Rid Of It?

PMI: What Is It? & How Can I Get Rid Of It?

Private Mortgage Insurance, more commonly referred to as PMI, is an insurance borrowers pay for to protect their lender against the risk of default and foreclosure. Not all loans require PMI, loans that are not 80% LTV (meaning less than 20% was put down) are considered more high risk and will many times require mortgage insurance.

The PMI is typically collected as a part of your monthly payment and then goes to the insurer. This will continue to be collected until your loan reaches 78% LTV (Loan To Value) which indicates that you have 22% equity in your home. Once you’ve reached 20% equity (80% LTV) then your lender should automatically remove the coverage, but it usually isn’t realized until the 78% LTV. You can save yourself some money if you reach out to your lender when you are at 80% LTV and ask for it to be removed at that point and they should grant the request.

Especially within the past few years, we’ve seen values increase at an unprecedented rate. For homeowners who closed on their loan in 2020 or prior you should be aware that with the increased value in your home your Loan To Value might be lower than what your original amortization schedule is showing. Have a CMA (comparative market analysis) done on your home to help you figure out the estimated value and if you’re around that 80% mark it would be a fantastic time to begin requesting that your mortgage company cancel your PMI. For homeowners in Southern Idaho, I can personally assist you with this valuation, for those outside the area I serve I can happily connect you with someone who can help.

The Homeowners Protection Act includes a section which helps to protect “Non High Risk Residential Mortgage Transactions” outlining the lending institutions requirements and the protections in place for consumers. If you’re wishing to cancel your PMI, contact your lending institution in WRITING and request the cancellation and the procedure necessary. If you’re amortization schedule is showing that you are above the 80% LTV you may need to pay for an appraisal to prove the value in your home, find out from your lending institution if this is the case but get help from your real estate professional first on your valuation to make sure you’re close prior to paying for an appraisal.

PMI is a great tool that affords many the ability to obtain a mortgage without sinking 20% into it right off the bat. However, no one likes to pay more than they have to especially when inflation is high. If you think you’re on the cusp it never hurts to ask.

If you would like help with a valuation or have additional questions, please email me @ logan@sellingthesnake.com