What is PMI and how can I get rid of it?

Private Mortgage Insurance, or PMI, is insurance that protects banks and lenders in case you stop paying the mortgage. If you are putting a 20% or more downpayment on your house, you don’t need to worry about it since the lender is unlikely to be at risk of losing money if they need to repossess your house and sell it.  With less than 20% down, the lender is going to want the insurance and they make you pay for it.  Unlike just about every other kind of insurance that you buy, PMI does zero to protect you, so you will want to get rid of PMI as soon as possible. It is money down the drain each month for the homeowner with no benefit other than that it allowed you to purchase your house in the first place.

Mortgage servicers have to remove the PMI automatically once you have paid down the loan balance to 78% of the home’s value.  However, you can request that your lender remove the PMI when you are at 80% of the home’s original appraised value, which in most cases is what you paid for it. 

Here is an example. It is simplified as it doesn’t consider the closing costs, but you will get the idea:

            Purchase Price of home/ value:    $445,000

                                    Downpayment 5%    $22,500

                                    Loan                           $427,500

              80% loan to value = $356,000 mortgage balance left

              78% loan to value = $347,100 mortgage balance left  

In the example above, the mortgage principal would have to be paid down by $8,900 more to wait for the PMI to drop off, as opposed to requesting its removal at the 80% point.  If an average mortgage payment in our example reduces the principal by $500, then there is a difference of 18 months from the time that the PMI could potentially come off and the time that the PMI is being removed without you having to do anything. If PMI is, for example, $82.00 a month, the savings is $1,476.00 .

As you can see, it is absolutely worth asking that your PMI be removed ahead of schedule. You have to be current on your mortgage though, or they won’t do it.  Know your numbers and the minute your principal balance drops below your 78% LTV (loan to value) number, you will want to contact your lender. Why pay PMI for any longer than you have to? This is something that most people do on their own without a lawyer, but if you’d rather not deal with it, we can do it for you rather inexpensively. Don’t give the bank any more money than you have to.  In 2017 I removed mine and am happier for it with the extra money in my pocket.          

Carol O'Connor Cadiz
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Attorney & Owner at O'Connor Cadiz Law: Injury & Accidents, Disability Insurance.