PMI is generally charged on basic conventional mortgages with low down payments. The amount is charged monthly and part of the mortgage payment. Cancelling PMI from conventional mortgages will save significant money, so it is a good idea to understand how PMI works and how it may be adjusted. Below is an overview.
Reducing the Principal of Your Mortgage
When you initially receive a mortgage, an appraisal is required by the lender to confirm the precise market value of the property. The amount of your mortgage relative to the appraised value determines the loan-to-value percentage. Once your loan-to-value drops down to 78%, PMI is cancelled from your mortgage payment. This is true regardless of the number of years for your mortgage or how quickly you to pay it down. If you submit strictly regular mortgage payments, the PMI adjustment date should be detailed in the amortization schedule in your mortgage package. You will reach this timeframe sooner if you submit additional payments towards the balance of your mortgage.
Change in Home Values
In real estate markets where real estate prices are rising, your house can be more valuable than the initial appraised amount. Thus, the loan-to-value ratio may drop in a shorter amount of time. If you have kept the mortgage for at least five years, you may order a current appraisal from your mortgage company to gauge the updated home price. There is a fee for obtaining the report. If you have reached the 78% mark as a result of the new figures, then you can have PMI eliminated from your mortgage.
Cancelling PMI From Conventional Mortgages
Although PMI will be automatically removed from a conventional mortgage once you have paid it down, it is not the only solution. PMI makes up a significant portion of your monthly payment, so understanding the home prices and options for requesting removal is valuable. Always reference your mortgage paperwork for the particular conditions of your mortgage. The above is merely an overview and might not actually apply to your particular mortgage. Consult with a loan officer for further advice.