If you made less than a 20 percent down payment on your new house, there is a good chance that your mortgage payment is inflated by PMI. Private mortgage insurance is a special type of coverage that protects the lender from losses if you default on a mortgage. It is specifically required with low down payment loans because those loans are statistically more likely to go into default. PMI may be paid in the form of a higher interest rate or a fixed add-on fee to the mortgage payment. Because PMI can equate to hundreds of dollars per month, you understandably want to get rid of it as soon as possible.
Depending on the type of loan you have and how your PMI is structured, there may be several options available for eliminating this payment. For some loan programs, the payment will be automatically dropped when you have 22-percent equity in the home. You may be able to request that it be dropped once you have 20-percent equity. However, in some cases, you may have to refinance your mortgage to remove the PMI. For example, if your PMI was included in your mortgage in the form of a higher interest rate, you will need to wait until you have 20 percent equity in the home to refinance the mortgage. Keep in mind, however, that other factors will impact your new interest rate. These include your credit scores, your debt-to-income ratio, mortgage rates at the time and more.
At MortgageDepot, we strive to empower our clients with knowledge. Whether you are applying for a new home loan and are worried about PMI or you are trying to remove PMI on an existing mortgage, we are available to answer your questions. Contact us today to learn more.
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