Private Mortgage Insurance

Dated: 10/05/2016

Views: 681

Private Mortgage Insurance

What is private mortgage insurance?

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Private mortgage insurance, or PMI, is a type of mortgage insurance that is used with conventional loans. It's job is to protect the lender, as opposed to the home owner, if payments aren't being made on the loan. PMI can help you qualify for a loan that you might not otherwise be able to get, but it will also increase the cost of your loan. You also won't be protected if you run into problems on your mortgage.

A PMI is usually required when there is a conventional loan with a down payment of less than 20 percent of the home’s purchase price. A PMI is also usually required if you’re refinancing (also with a conventional loan) and your equity is less than 20 percent of the value of your home. 

How do I get rid of PMI?

To remove your PMI, you must have at least 20% equity in the home. Once you have paid the mortgage balance to 80% of the home's original appraised vaule, you may ask the lender to cancel PMI. Your mortgage company must eliminate PMI when the balance drops to 78%.

How can I cancel my PMI sooner?

  • Refinance: If your home value has increased enough, the new lender won't require mortgage insurance.

  • Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding whether you meet the 20% equity threshold. 

  • Prepay on your loan: Even $50 a month can mean a dramatic drop in your loan balance over time.

  • Remodel: Add a room or a pool to increase your home's market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure.

What are my rights?

By law, your lender must tell you at closing how many years and months it will take you to pay down your loan sufficiently to cancel mortgage insurance. Mortgage servicers must give borrowers an annual statement that shows whom to call for information about canceling mortgage insurance.

For your own updated home value, go to or contact the Realty Edge Team at 507-722-1107 or at 

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Kyle Swanson

Kyle is a licensed realtor and co-owner of the Realty Edge Team, brokered by eXp Realty, LLC, at 300 1st Ave NW Rochester, MN. He founded the Realty Edge Team in 2011 along with Dan Kingsley. At age 2....

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