So, if you want to eliminate your PMI, it may be worth paying for an appraisal of your property to determine if you qualify for PMI removal. If you’ve made upgrades, or live in a highly sought-after neighborhood, there’s a chance your property value has increased. You can also consider getting a second job or applying your tax refund toward your home loan. Speed up your mortgage repayments by making a lump sum payment, or switching to bi-weekly payments, instead of monthly. To calculate what your mortgage balance needs to be to reach 20% equity (and become eligible for PMI cancellation), multiply your original home purchase price by 80%. Making extra payments toward your mortgage is the most straightforward way to get rid of your PMI. If you’re already close to the 20% equity mark, or if you locked in a great deal when rates were low, refinancing into a loan that doesn’t require PMI may not save you much money considering the closing costs and potentially higher interest rates. However, refinancing your mortgage might not be worth it for everyone. This means you could refinance into a new loan without paying for PMI. For example, if you purchased your property by putting 10% down, and the home’s value has risen 40% since then, you now have 50% equity in the home. Refinancing your mortgage to get rid of your PMI is worth considering if your home’s value has increased substantially in the past few years. For example, you provide evidence that the value of your property has not declined below the original value. You meet the mortgage lender’s requirements for PMI cancellation.The principal balance of your loan has reached 80% or lower of the property’s original value.You’ve made a formal cancellation request to the mortgage lender in writing.PMI cancellation guidelines could vary depending on the lender, but you typically must meet the following requirements: For example, if you own a $400,000 home, you can typically submit a PMI cancellation request to your lender once your outstanding mortgage loan balance drops to $320,000 or below. The PMI Cancellation Act also gives borrowers the right to request PMI cancellation from their lenders once they’ve reached 20% equity in their homes, or put another way, once their loan balance is 80% of their home’s original value or lower. For example, if you have a 15-year mortgage, your lender must terminate your PMI at 7.5 years, even if your mortgage balance has not dropped to 78% or below your home’s value. The act also stipulates that the lender or servicer must terminate PMI at the midpoint of your loan’s amortization period. You can calculate your LTV ratio by dividing your current loan balance by your home’s current appraised value. The Homeowners Protection Act of 1998, also called the PMI Cancellation Act, mandates that your mortgage lender must automatically eliminate your PMI when you meet these two requirements: You’re current on your mortgage payments, and your loan-to-value (LTV) ratio has dropped to 78% or below. If you’re a budget-conscious borrower, consider the following five ways to get rid of PMI and lower the cost of homeownership.
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