Mortgage Repayment Hack: How to Remove Private Mortgage Insurance (PMI) and Save Money
Purchasing a home is a significant milestone for many individuals and families. However, if you didn’t have the opportunity to make a 20% down payment, chances are your lender required you to obtain Private Mortgage Insurance (PMI). PMI can significantly increase your monthly mortgage payments, making it crucial to explore ways to eliminate this cost. In this article, we will discuss a mortgage repayment hack that can potentially save you thousands of dollars over the life of your loan.
Understanding Private Mortgage Insurance (PMI)
Private Mortgage Insurance is an insurance policy that protects the lender in case the borrower defaults on their mortgage payments. When you put less than 20% down on your property, your lender typically views you as a higher risk borrower. PMI acts as a safeguard for the lender by covering a portion of the loan balance in case of default.
PMI Removal Requirement
Know that PMI will usually remain in effect until you have paid off at least 20% of the loan balance, or the loan-to-value (LTV) ratio falls below 80%. However, there is a way to potentially remove PMI from your mortgage before reaching this point.
Proving Your Property’s Increased Value
If you believe that your property’s value has increased significantly since you purchased it, you might be eligible to request the removal of PMI. Typically, if your property’s value has risen by 20% or more compared to your current loan balance, you have a strong case to have PMI removed.
Steps to Remove PMI
1. Research and Gather Information: Before initiating the process, collect essential documents such as your mortgage statement, recent home appraisal (if available), and any documents related to property improvements or renovations that might have increased its value.
2. Perform a BPO or Appraisal: Contact your lender to inquire about their specific requirements for PMI removal. Some lenders may accept a Broker Price Opinion (BPO) instead of a formal appraisal, which can be more cost-effective. A BPO involves a real estate professional assessing the current value of your property.
3. Calculate Loan-to-Value (LTV) Ratio: Determine your current LTV ratio by dividing your mortgage balance by your property’s appraised value or broker opinion. If this ratio is below 80%, you can request the removal of PMI.
4. Submit Documentation: Prepare a formal request to your mortgage lender, including all the necessary documentation. This may include the BPO or appraisal report, property improvement records, and any other supporting evidence that proves the increased value of your property.
5. Follow Up: After submitting your request, follow up with your lender to ensure that they have received your documents and are processing your request. If necessary, provide additional information to support your case.
Personal Experience
As an example, I recently went through the process of removing PMI from my mortgage. After two years of homeownership and only putting 3% down on my property, I decided to investigate the possibility of removing PMI due to the steep rise in the housing market.
I reached out to my lender and requested a BPO to assess the current value of my home. The BPO report proved that my property had appreciated by over 20% since the time of purchase. Although there was a small cost associated with the BPO, it was a small price to pay for the potential savings over the life of the loan.
This month, my lender dropped the PMI from my mortgage. With this successful outcome, I am now able to enjoy significant savings and lower monthly mortgage payments.
Private Mortgage Insurance can be a considerable financial burden, adding to your monthly mortgage payments. However, if your property’s value has increased substantially since purchasing it, you may be eligible to have PMI removed. By following the steps outlined in this article, you can potentially save thousands of dollars over the course of your loan. Remember, conducting proper research, gathering necessary documents, and effectively communicating with your lender are vital to ensuring a successful PMI removal.
