🏠 So you recently taken the plunge into the world of homeownership, first off, congrats! 🎉 It’s a significant milestone. But let’s be real, as savvy as our generation is with things like technology, avocados, and side hustles, there’s one area where many of us could use a little help: understanding the nuances of our mortgage. Today, we’re diving deep into the world of Private Mortgage Insurance (PMI) and, most importantly, how to kiss it goodbye. 💋
What’s PMI Anyway? Private Mortgage Insurance (PMI) is an insurance policy required by lenders for conventional loans when homebuyers put less than 20% down. While PMI protects the lender in case you default on your loan, it’s an added expense for you, and quite frankly, does absolutely nothing for you. I know what you’re thinking – Another monthly fee? GREAT!
Why Does PMI Matter? Majority of homebuyers opt for low down-payment options to make homebuying possible, especially with rising home prices and student loans knocking on our doors. In fact, the median down payment for first time buyers is only 6%! This means that the majority of us are strapped with PMI. But here’s the good news: PMI isn’t forever. Just like that regrettable lip tattoo from spring break, there are ways to get rid of it!
The Path to Ditching PMI
- Build Equity: Essentially, you want to own more of your home and owe less. Once you’ve paid your mortgage balance down to 80% of what you purchased it for, you can request the removal of PMI. The more you pay down your mortgage, the faster you’ll reach this milestone.
- Refinance: Refinancing or restructuring your mortgage can be a shoe in for removing PMI.
- Reappraisal: If you believe your home’s value has increased to the point where you not have 20% equity based on the current value – maybe you’ve made some killer renovations or your area has become the next hipster haven – you can request the removal of PMI with a lender approved appraisal. If the new appraisal shows you owe less than 80% of the home’s value, bye-bye PMI. In the current economic landscape, this is generally the quickest and easiest way to get rid of that pesky PMI expense.
- Automatic Termination: Here’s some comforting news. By law, lenders must terminate PMI when your loan balance hits 78% of the home’s original appraised value, as long as you’re current on payments. So, if all else fails, your PMI will be removed once you hit this mark.
PMI and the Future Look, while PMI isn’t anyone’s favorite topic, it’s a necessary tool for many millennials to step into homeownership. But remember, just because it was necessary at the start doesn’t mean it needs to stick around for the entirety of your loan.
Planning ahead and understanding the terms of your loan can free up THOUSANDS of dollars in expenses per year. Imagine having an extra $250 per month just sitting in your bank account month after month.
Whatever you choose, here’s to smart financial decisions and a PMI-free future! Cheers! 🥂
Note: Always consult with an experienced financial or mortgage professional before making decisions related to your home loan. Here at MT Group, we have more than 2 decades of experience in all things mortgage and finance!