The steps you need to take to free yourself from private mortgage insurance.
In many cases, it’s possible to cancel PMI much sooner than you could by paying down the loan to 78 or 80% of the home’s original value. Although they’re not required to by law, lenders and mortgage servicers who follow Fannie Mae and Freddie Mac guidelines may cancel PMI based on the home’s current value instead of its original value at the time you got the mortgage. Using the current market value instead is a big win for borrowers since it means you can usually cancel PMI much earlier. The Fannie Mae and Freddie Mac guidelines apply regardless of the date your loan was originated, but you must have had your loan for at least two years and you must not have had any 30-day-late payments within the last year, nor any 60-day-late payments the year before that.
Under the Fannie Mae and Freddie Mac guidelines, you can cancel PMI when your house has appreciated to a point where the value of your mortgage is 75% or less of the home’s current value if you’ve had your loan for two or more years. If you’ve had your loan for five or more years, you can cancel PMI when the mortgage is 80% or less of the home’s current value.
How to Cancel PMI
To cancel PMI early, you need to take action! First, get an idea of the current value of your home. Websites such as Zillow.com can give you a rough estimate of your home’s value. Next, ask your lender what you need to do to cancel PMI and what the value of your home must be to cancel.
If your lender does allow PMI to be cancelled based on your home’s current value, they will order an appraisal at your request and expense. It’s makes sense to pay for the appraisal if it’s very likely to show that your home has appreciated enough to meet the criteria for canceling PMI and you are otherwise eligible to cancel. [[AdMiddle]
If you do have PMI, canceling it as soon as you are eligible to do so can save you money each and every month and is well worth the effort! So if you’re currently paying PMI, contact your lender and find out what you need to do to cancel it.
For more up-to-date information about PMI and how to cancel it, please check out episode 176 of Money Girl.
As always, everyone’s situation is different, so be sure to consult a tax or financial advisor before making important financial decisions. This podcast is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice.
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o The Homeowners Protection Act of 1998