Private mortgage insurance (PMI) can feel like a pesky leech sucking the life out of your monthly mortgage payment. But fear not, intrepid homeowner! There are ways to break free from its clutches and reclaim your hard-earned cash.
Can you pay a lump sum to get rid of PMI?
Absolutely! While most methods to ditch PMI involve patiently building equity over time, there’s a shortcut for the financially fearless: paying a lump sum.
How does it work?
Simple. By making a one-time payment that reduces your loan-to-value (LTV) ratio to 80% or below, you can trigger automatic PMI cancellation. This means no more monthly PMI premiums, freeing up some extra cash for your avocado toast addiction or that long-awaited vacation.
Is it a good idea?
That depends. If you have the funds readily available and are itching to ditch PMI ASAP, then go for it. However, if you’re scraping by to make ends meet, it might be wiser to build equity gradually through regular payments. Remember, a healthy emergency fund is crucial, so don’t drain your savings just to get rid of PMI
But wait there’s more!
Paying a lump sum isn’t your only option. Here’s a buffet of other strategies to help you say “adios” to PMI:
- Reach the magic 20% equity mark: This is the golden ticket to automatic PMI cancellation. Once your loan balance drops below 80% of your home’s original value, your lender is legally obligated to remove PMI.
- Request cancellation at 78% LTV: Even if you haven’t reached the 20% equity milestone, you can still request PMI cancellation once your LTV hits 78%. Just remember, this requires a formal request and might involve an appraisal.
- Refinance your mortgage: If interest rates have taken a dive, refinancing could be a smart move. Not only could you snag a lower rate, but you might also be able to refinance into a loan that doesn’t require PMI.
- Get your home reappraised: If your home’s value has skyrocketed since you bought it, you might have enough equity to ditch PMI without making any extra payments. Just be prepared to shell out for a new appraisal.
- Expand or renovate your home: Major home improvements can increase your home’s value, potentially pushing you over the 20% equity threshold. Just make sure the renovations make financial sense in the long run.
Remember:
- Don’t rush into anything. Analyze your financial situation and choose the strategy that best suits your needs.
- Consult with a financial advisor to ensure any decisions align with your overall financial goals.
- Be proactive and reach out to your lender to discuss your options. They’re there to help you navigate the PMI maze.
With a bit of planning and the right strategy, you can kiss PMI goodbye and enjoy the sweet taste of financial freedom.
Bonus tip:
Never be afraid to ask your lender for clarification if the jargon is confusing you. They are the professionals and will gladly assist you in comprehending the nuances of PMI.
Now go forth and conquer your PMI!
Pros and cons of paying PMI upfront
Your PMI cost is paid in full at closing. You only pay upfront PMI once, which means you won’t have any ongoing monthly mortgage insurance costs.
You’ll end up with a lower monthly payment. With your entire PMI premium paid at closing, your monthly housing expense will be lower.
You won’t need to cancel PMI later. Borrowers who choose to pay PMI upfront don’t have to worry about requesting a PMI cancellation letter.
You’ll spend more money at closing. Depending on the amount of the premium, upfront PMI is added to your overall closing costs and could empty your bank account.
You could lose money if you have to sell too soon. You might need to sell your house before you break even on your upfront premium costs due to an unexpected job loss or financial emergency.
You may not get a tax benefit for the extra expense. Current IRS laws don’t allow you to write off upfront PMI premiums paid after Dec. 31, 2021.
Understanding the four ways you can make PMI payments
A smaller down payment than what is required for a conventional loan usually entails paying the additional cost of private mortgage insurance to protect the lender’s risk in the event that you default. Most lenders offer four different options to make PMI payments:
Monthly premium. Most borrowers choose this PMI payment option. The premium amount is based on a percentage of your loan balance and added to your monthly payment.
Single premium. This option, also known as “upfront PMI,” enables you to pay the full premium at the time of your mortgage closing in one lump sum.
Lender-paid premium. Some lenders called this “lender-paid mortgage insurance” or LPMI for short. Your mortgage interest rate will increase if you accept the increase, and the lender will cover the PMI premium on your behalf.
Split premium. You can pay a portion of PMI upfront and add the remaining premium amount to your monthly mortgage payments by combining the monthly and single premium options.
FINALLY Remove Your PMI – Tips from a Loan Officer
How do I get rid of PMI on my mortgage?
PMI can add hundreds of dollars to your monthly mortgage payment. If you’re tired of seeing premium payments eat into your monthly budget, there are six main ways to get rid of it. Wait until you qualify for automatic or final termination of PMI. Request PMI cancellation when your mortgage balance reaches 80 percent. Pay down your mortgage earlier.
How do I remove PMI from my monthly payment?
You can remove PMI from your monthly payment once you have 20% equity in your home. You can do this either by requesting its cancellation or refinancing the loan. The specific steps you’ll take to cancel your PMI will vary depending on the type of insurance you have.
How do I pay a PMI premium?
The PMI premium can be paid several ways: As a monthly premium added into your monthly mortgage payment. As an upfront premium, which may not be refundable if you refinance or move out of the property. Sometimes you can negotiate with the seller to pay this for you. As both a monthly premium and upfront payment.
What is a PMI payment option?
Most borrowers choose this PMI payment option. The premium amount is based on a percentage of your loan balance and added to your monthly payment. Single premium. Also called “upfront PMI,” this option allows you to pay the entire premium in one lump sum at your mortgage closing. Lender-paid premium.