Can-You-Remove-PMI-Without-Refinancing

Did you know lenders can add insurance in case you default on your mortgage? This is called private mortgage insurance, or PMI for short. But what if you want to remove this type of insurance? Can you remove PMI without refinancing? You’re in luck because there are a number of ways you can. Read on to find more information about removing PMI without refinancing.

How do you know if you have PMI with your mortgage?

Many conventional mortgages include PMI. In particular, most lenders require PMI for home loans with down payments of less than 20%. It can also depend on the lender and the type of loan you obtained.

If you think you’re paying for private mortgage insurance but aren’t sure, you can look through your initial loan paperwork or contact your lender to confirm. It may even be listed in your monthly mortgage statement.

Why should you consider removing PMI from your mortgage?

PMI is insurance for your lender not for you, but you pay for the coverage in addition to your mortgage payment each month. These payments could cost you thousands of dollars a year. So, when PMI is no longer required by your circumstances, it’s a good idea to look into removing it. It can help you save some money every month.

How much does PMI add to your monthly mortgage payments?

While the exact amount you pay will vary between loans, it’s useful to have an idea of how much PMI adds to your mortgage payments. The PMI you’re charged depends on both your lender and on the balance of your mortgage. For instance, the additional amount you’re charged could range from 0.3% to 1.5% of your mortgage balance annually. As that balance goes down, so does the PMI payment, but this also means that, as long as you owe on your mortgage, you’ll be charged for PMI.

Other factors that can affect the PMI amount include your down payment, your mortgage agreement, the loan term and your credit score.

How can you remove PMI from your mortgage without refinancing?

Refinancing your home loan is a common way of removing PMI insurance. But what if you’d prefer not to refinance right now? Is there still a way to remove PMI from your mortgage without refinancing?  The answer to that question is yes.

Equity

One path to removing PMI from your mortgage without refinancing is to build up the equity in your home. In this case, your PMI can be automatically removed when you reach a certain amount of equity.

Equity is calculated by subtracting the amount you owe on your mortgage from the appraised value of your home. You build equity when you make payments toward your mortgage or if the value of your home increases.

So, how much equity do you need to remove private mortgage insurance? The lender may automatically remove PMI from your mortgage once you reach 22% equity. It’s a good idea to ask your lender about this option before you sign the paperwork.

Typically, you can start taking steps to remove PMI once your equity reaches 20%. More on this to follow.

Mortgage Schedule

Lenders may also automatically remove PMI if you’re a certain number of years into your agreed-upon mortgage schedule; usually, halfway. For instance, if your mortgage term is 30 years, after 15 years, your PMI could automatically be removed without the need to refinance. And if your mortgage term is 15 years, that means you could be done with PMI after only 7.5 years. This should be the case even if your equity isn’t at 22% yet. Though, if you’re making on-time mortgage payments each month, this shouldn’t be a problem.

Application to cancel

Once you reach 20% equity in your home, you have another option for removing PMI without refinancing. You can apply to cancel the PMI. This involves submitting a request to your lender.

You’ll need to be in good standing with your lender, and it helps if you haven’t taken out a second mortgage. Your application also has a better chance of succeeding if you’ve been making your payments on time.

In some cases, the lender may require a home appraisal. This is to make sure your home’s value hasn’t decreased.

What steps can you take to build equity faster?

When you make regular, on-time payments, you’ll be able to easily calculate when you’ll reach 20% or 22% equity. This makes it easy to plan ahead to reach your goal of removing the PMI as soon as possible. But how can you remove PMI more quickly? You can build your home equity faster by paying extra against your principal.

One way to do this is to pay a little extra each month. Even a tiny increase can really add up. If you don’t want to pay extra every month, you can instead make additional payments once or even a couple of times a year. You can also make a one-time additional payment if you receive an unexpected amount of money at any time, such as from a work bonus or an inheritance.

Before you pay ahead on your mortgage schedule, check with your lender to see if there are early repayment fees of which you need to be aware.

What if you want to remove PMI by refinancing?

While you can remove PMI from your mortgage without refinancing, some borrowers do choose to refinance. You’ll want to weigh the pros and cons of each option to make the best choice for your situation. 

If you need a hand figuring out the best path for removing PMI, turn to our helpful Home Loan Guides at Solarity.

At Solarity, we strive to make homeownership an option for everyone, no matter their financial situation. Learn more about first-time homebuyer and no-down-payment loan programs. Make use of our loan payment calculator to determine your options. Explore helpful resources on all sorts of home loan questions, from PMI and beyond. Or talk with one of our experts. Whatever your financial goals are, Solarity is here to help.

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