What is PMI?
PMI, or private mortgage insurance, is an extra fee that is tacked on to your monthly mortgage if you put less than 20 percent down when you bought your home. You are typically charged this fee until the equity you have in your home reaches 20 percent of the home’s value.
Who is paying PMI?
If you put less than 20 percent down on your home, you are probably paying PMI.
How much am I paying for PMI?
PMI could be adding, on average, anywhere from $40 to $80 per month—or up to $960 every year—onto your mortgage!
Who is eligible to drop PMI?
Depending on what type of loan you have and when you first took it out, you are typically able to discontinue PMI payments on a loan in good standing when you have 20 percent equity in your home. Most lenders will automatically remove PMI fees when you reach that 20 percent mark, but others require that you request it be removed. You will want to contact your lender and find out which rules apply to your loan.
If your home has appreciated in value since you bought it, you may be eligible to drop your PMI even if you have not reached 20 percent equity through making your monthly payments. This is great news for many of us who have taken on remodeling projects or bought at the bottom of the market, but you have to take action. Even if you are eligible to cancel PMI payments because your property went up in value, it won't happen automatically!
How to get rid of PMI payments
If you think your home has appreciated in value enough to get rid of your PMI fees, there are several things you will need to do. You will have to prove to the lender that your home is worth what you think it is. Don’t go out and immediately pay for an appraisal without first contacting your lender, because they may not honor it. Typically, the lender will choose the appraiser you must use, and the appraisal will cost around $200–300. Given how much money you can save every year once PMI fees are removed, this appraisal fee may be worth it, but you will want to do your homework before having it done since you will still be out the money if your home doesn’t appraise at a high enough value.
Once you get rid of PMI charges it can be tempting to pocket the extra cash each month, but consider continuing to pay the same amount, anyway. You won’t miss it because you’re used to paying for it, and the extra money can be put straight towards the principal on your loan. This will save you a considerable amount of money over the life of the loan, helping you pay it off years faster.
What to do when you can't cancel PMI
If you can't cancel your PMI due to the type of your loan, your only option may be to refinance. This can be expensive, so you will want to consult with your lender to discover all the pros and cons.
This is a guest post by April from Grand Blanc, MI
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