If you’re currently paying Private Mortgage Insurance (PMI) and have been for several years, it may be time to petition your lender to have the PMI payment removed.
Waiting for it to drop off 'automatically' may mean you will be stuck with the higher payments for at least five to ten years from your original purchase date.
PMI protects lenders from homeowners that stop making payments on homes with small amounts of equity. It’s an insurance policy that is “cashed in” if the homeowners defaults.
However, federal law allows homeowners to request the cancellation of PMI if their loan-to-value (LTV) drops below 75 or 80% based on the new or the original appraised value, depending upon your exact circumstances.
Usually, you need to have been paying on the loan for at least two years, except in cases where you have made major improvements to your home.
An example of 80% LTV is a home that is worth $100,000 on which $80,000 is owed to mortgage lenders.
If you are paying PMI and think you are eligible to have it removed, contact your mortgage lender and ask them about their procedure to remove PMI.
The lender may require that you have your home appraised (at your expense) and that may cost anywhere from $200 to $400 — but if your petition is successful, the cost of an appraisal is much less expensive than the ongoing monthly cost of PMI.