Private Mortgage Insurance (PMI) is a common cost for homeowners, but it doesn’t have to be permanent. Here are some ways you can remove PMI payments from your mortgage and save more money sooner than you might think.

PMI is an insurance policy that protects lenders in the event that a homeowner defaults on their loan. It’s required when down payments amount to less than 20% of the home’s purchase price. Actual payment amounts depend on various factors such as mortgage terms and remaining balance.

There is a point at which removing PMI is possible, and dropping it can be advantageous for you and save you money over the life of your loan. The following options coincide with Consumer Financial Protection Bureau (CFPB) guidelines, and can help you eliminate PMI.

Equity is measured by the difference between the value of your home and what you owe on your mortgage, and it is essential for PMI removal. Upon reducing your principal balance to 80% of the home’s original value (meaning you’ve reached 20% equity), you can then ask your lender to remove PMI from your mortgage. This can occur on the date your principal balance is scheduled to hit 80%. As long as you submit the request in writing, are current on payments, have a solid payment history, don’t have any junior liens on the property, and your home’s value hasn’t dropped below its original purchase price, you should be good to go.

Another threshold to keep in mind is when your loan balance reaches 78% of the original loan amount, which corresponds to 22% equity. On the date that you reach this milestone, PMI can be terminated as long as you are current on your payments. You can reach this point faster by making occasional extra payments toward your mortgage. If that’s not possible, simply continue making your regular payments and over time, you’ll build enough equity to remove PMI.

Even if you haven’t reached 22% equity, PMI can drop off the month after you reach the midpoint of your loan term. As long as you’re up to date on payments, this would happen (for example) at year 15 of a 30-year mortgage. CFPB guidelines state that this method for ending PMI is “more likely to occur for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment.” Stay consistent on those mortgage payments and you’ll be on track to save cash!

Refinancing is a powerful tool that can help you quickly reach the equity needed for PMI removal, especially if your home’s value has increased over time. By refinancing, you replace your current mortgage with a new one. If the new loan starts with at least 20% equity, PMI is no longer required. Plus, choosing a shorter loan term can help you build equity even faster and drop PMI sooner as a result.

Keep in mind: If you have an FHA loan, the only way to remove PMI is by refinancing your mortgage. If you’re ready to explore your options, give us a call at 877.715.9908 to learn more about the process from one of our Home Loan Experts!