Homeowners: If you are still paying PMI, make a phone call now!
Updated: Apr 1
Are you a homeowner? Did you put less than 20% down when you bought your home? If so, you likely are paying PMI (private mortgage insurance).
Homebuyers who use a conventional mortgage with a down payment of less than 20% are required to get private mortgage insurance. This is included in your monthly mortgage payment, which can add 0.3-1.5% to your overall costs. How much you pay is determined by your credit score, your overall mortgage and loan terms and the amount of your down payment. Lenders will tell you that once you’ve built up 22% equity in the property, your PMI will automatically be terminated. Typically, this can take 7-10 years depending on your interest rate.
When mortgage rates were low(er), you could consider refinancing your mortgage, which may eliminate PMI.
Request PMI cancellation with a new appraisal
What most lenders don’t tell you is that a simple reappraisal can do the same thing. You don’t need to refinance your house in order to apply for a PMI removal. In this hot real estate market (especially Nashville), if you have owned your home for even a short period of time (12-24 months), you may be eligible to cancel your PMI early. A new appraisal can cost between $100-$500 depending on your lender and city pricing. Some lenders might even be willing to accept a BPO (broker price opinion) which is usually much cheaper than a full appraisal.
You can start the process with a simple phone call to your lender (current mortgage holder) to request their requirements for PMI removal. Often times, they will require a form in writing in order to formally start the process. After looking at market values in the area, you could justify a new appraisal or BPO. If you have made any improvements to the house since the original loan (and PMI) was issued, remember to include the list and estimated values for review.
I was able to get a new appraisal on my first house after just two years. With substantial improvements to my second home (including a new master bathroom), I was able to remove my PMI after six months of ownership. If you have an investment property, you need to have a current loan-to-value (LTV) of 65% and have made mortgage payments for at least two years. It’s also important that you don’t have any late payments for the last two years.
Don’t keep paying for additional mortgage insurance in this strong real estate market; give your lender a call today and request your own PMI termination!
This is not an advertisement, and my personal experience does not constitute universal application. Information is for educational purposes only. Each financial situation is unique.