If you have been paying for PMI, you are probably looking forward to getting rid of that extra payment on your monthly budget so you can start saving money and see your mortgage payment reduced. While PMI eventually is canceled automatically, there are several options that allow you to get rid of it faster.:
Request Early Cancellation:
Instead of waiting for automatic cancellation, you have the right to request that the servicer cancel PMI once your loan balance reaches 80 percent of the home’s original value. If you are making payments as scheduled, you can find the date that you will get to 80 percent on your notice concerning private mortgage insurance and amortization schedule.
Schedule Steps you will need for an early private mortgage insurance cancellation:
Make a written request: Make a written request to your lender several months before the mortgage is scheduled to hit 80% loan to value and get the process moving.
A good payment history: The rule is no payments 30 days late in the past 12 months and no 60-day late payments in the previous 24 months. Timely payments count when it comes to getting rid of PMI. Late payments can put you in a high-risk category, making it harder to cancel.
No other liens: Your mortgage must be the home’s only debt, including second mortgages, home equity loans, and lines of credit.
Proof of value: An appraisal, at your expense, to prove the home’s value hasn’t fallen. Certain lenders accept a broker price opinion instead.
Get A New Appraisal:
As property values keep rising, it may be the perfect time to request an early cancellation based on the home’s current value. You will probably need a new appraisal for that.
Before spending money on an appraiser, check your lender’s rules. Some lenders require borrowers to use certain appraisers. Others accept a broker price opinion, a quicker process costing about half or less of an appraiser’s fee.
To cancel your PMI under Fannie Mae guidelines based on current value, you must have owned the home for at least two years and have 75% loan-to-value. If you have owned the home for at least five years, you can cancel at 80% loan-to-value.
Refinance Your Mortgage:
When mortgage rates are low, as they are now, you might consider refinancing your mortgage to save on interest costs or reduce your monthly payments. At the same time, refinancing might enable you to eliminate PMI if your new mortgage balance is below 80 percent of the home’s value; this could save you 1000s of dollars.
The refinancing tactic works if your home has gained substantial value since the last time you got a mortgage.
For example, if you bought your house 5 years ago and the value has risen by more than 20 percent, now you owe less than 80 % of what the home is worth. Under these circumstances, you can refinance into a new loan without having to pay for “PMI”.
Your Private Mortgage Insurance Rights Under Federal Law:
Homeowners who pay for PMI should be aware of their rights under the Homeowners Protection Act. This federal law, also known as the PMI Cancellation Act, protects you against excessive “PMI” charges. You have the right to get rid of PMI once you have built up the required amount of equity in your home. Lenders have different rules for canceling your private mortgage insurance, but they have to let you do so.
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