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Avoid Private Mortgage Insurance (PMI) on Your Home Loan

Laura explains what private mortgage insurance (PMI) is and how to avoid paying it. Find out your rights for cutting this expense as quickly as possible so you reduce your mortgage payment and save more money.

By
Laura Adams, MBA
7-minute read
Episode #436

How to Know When to Cancel Private Mortgage Insurance (PMI)

If you’re a homeowner with a mortgage, it’s important to know when you can cancel PMI so you don’t needlessly pay for it.

If you’re a homeowner with a mortgage, it’s important to know when you can cancel PMI so you don’t needlessly pay for it. Watch out for the following situations that might enable you to stop paying it sooner rather than later.

  • The value of your home has risen. Home prices in many areas haven’t rebounded since the last recession. However, your home’s market value may still be up compared to its original purchase price, which could lower your loan-to-value ratio.  
  • You remodeled your home. Home improvements increase the market value of your home, which can get you closer to the 80% loan-to-value requirement to request a cancelation. However, if you took out a home equity loan or line of credit to finance the work, that reduces your equity.  
  • You paid down your mortgage. If you sent extra monthly payments or made a lump sum payment on your principal balance, having a reduced loan balance may have lowered your loan-to-value ratio. So getting rid of PMI is a great goal once you’re consistently investing for retirement, have a healthy emergency fund, and are free of high-interest debt.  

See also: When Not to Pay Off Your Mortgage Early

Here’s a quick and dirty tip: Multiply your current mortgage balance by 1.25. That’s the minimum amount your property must be worth in order for you to have an 80% loan-to-value ratio.

If you believe your property could appraise for that amount, contact your lender and find out how to move forward with a PMI cancelation, such as requesting it in writing and paying for an appraisal that they order on your behalf.

The sooner you get rid of private mortgage insurance, the more money you can save each month by paying less for your home.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.