pri·vate mort·gage in·sur·ance
Noun
Insurance that protects a mortgage lender against loss in the event a borrower defaults on a loan and the home goes into foreclosure.

Sally and John have fallen absolutely in love with a $300,000 home they just toured, and are ready to buy. The only problem is that they don’t have $60,000 to put as a 20% down payment. Their lender, Mike, views Sally and John as a riskier investment because of this and requires that they take out private mortgage insurance (PMI) to cover the lender’s interest in the property if Sally and John default on their primary loan.

PMI typically ranges between 0.5 and 5% of the original loan amount, and can usually be added to your monthly mortgage payments.1 With this in mind, let’s go back to our example above: A 1% PMI fee on Sally and John’s $300,000 loan would cost them about $3,000 per year, or $250 per month, on top of their mortgage payment.

While costly, taking out PMI can be crucial for some to purchase a home — especially for the first time. But here’s the good news: You likely won’t need to pay it forever. The first step to dropping your PMI payments is to check how much of the principal balance of the loan has already been paid. From there, you can either:

  • Schedule Termination
  • Your mortgage lender is required to terminate PMI payments as soon as you have paid off 22% of the original value of your home, or when your remaining loan balance reaches 78%, provided you are up-to-date on all payments.2
  • Request Removal
  • Once you have paid at least the equivalent of 20% of the original or current market value of your home (whichever is less), you can contact your lender and request that the PMI cost be removed from your mortgage payments.

Canceling your PMI can be a complicated process, so it’s important to understand your options and consult a financial loan professional. Call 888-LOAN-391, or stop by today to see how we can help!

1https://www.valuepenguin.com/mortgages/how-much-is-pmi
2https://www.bankrate.com/mortgages/removing-private-mortgage-insurance/