4 Ways to Part with Private Mortgage Insurance
Appraisal, inspection, insurance, taxes: The numbers really start to fly when you’re closing on a home. It’s easy for private mortgage insurance to get lost in the shuffle, but pay close attention to it, because you’ll be paying it for… how long?
HOW MUCH DOES PMI COST?
Private mortgage insurance runs around $50-$70 a month for every $100,000 you borrow. If you buy a house for $750,000 and make a down payment of 10%, your loan will be for $675,000 and your PMI payment will be about $350 a month. That’s a lot.
Many homeowners think they have to pay PMI forever, but as long as you keep up with your mortgage payments, you’ll have options for ending it.
MAKE A DOWN PAYMENT OF 20% TO COMPLETELY AVOID PMI
PMI isn’t required at all if you make a 20% down payment, but if you can’t do 20%, getting rid of PMI as fast as you can is your new goal—and that’s all about loan-to-value. If you owe $600,000 on your house, but your house is worth $750,000, then your LTV is 80% and 80 is a magic number when it comes to saying sayonara to PMI.
MAKE EXTRA MORTGAGE PAYMENTS
If your down payment is less than 20%, make extra mortgage payments as often as you can. When you get to 80% LTV, ask your mortgage company to cancel your PMI. Downside: You’ll probably have to pay for a new appraisal.
AUTOMATIC DROP OFF, PT. 1
When your LTV reaches 78%, PMI will automatically drop off, no appraisal or special paperwork needed. Be sure to review your mortgage statement to confirm it got cancelled. You’ll be able to tell because your loan payments will be significantly lower.
AUTOMATIC DROP OFF, PT. 2
PMI also drops off automatically when you’ve been paying it for half the life of your mortgage. So if you have a 30-year mortgage, your PMI will automatically go away after 15 years of on-time loan payments.
