As if buying a home wasn’t expensive enough, the added costs of PMI (private mortgage insurance) or MIP (mortgage insurance premiums) that most lenders require you to have makes the process all the more expensive and difficult.
Getting rid of your PMI or MIP payments can save you quite a bit of money when it comes to paying for a loan. Since loan repayments can last up to 30 years, it’s important to save as much as you can. However, getting rid of PMI or MIP insurance isn’t always straightforward.
Depending on the loan you took out and your lender’s requirements, you’ll need to double-check before assuming you can get rid of your PMI or MIP. If you’re curious about the possibility or determined to save your family money in the long run, here’s how to get rid of PMI or MIP mortgage insurance.
Getting Rid of PMI
Removing PMI will be different from removing MIP. If you’ve taken out a conventional loan, then you’re liking paying for PMI of some sort. Similarly with many government-backed loans.
If you’re paying for PMI and you want to know how to stop, here are three ways to do so.
1. Pay Off Your Mortgage Faster
This isn’t always an option for some people, but those who can afford to pay off their mortgage faster should. The faster you pay off your mortgage, the sooner you’ll reach the minimum equity required to remove your PMI. Usually, this is around 20% equity, though some lenders may have different thresholds so be sure to double-check.
If you’re able to pay a little extra each month until you reach the equity threshold, then you can drop your PMI and save money. The money you no longer need to spend on your PMI can go towards paying off your mortgage early.
2. Refinance Your Mortgage
If you’re able to get a new loan with 20% of your equity, then refinancing your current mortgage is a possibility for removing PMI. This is only recommended if you can refinance your mortgage for a lower interest rate and limit the fees, though.
In some cases, refinancing isn’t worth it as you may end up paying additional fees. Closing costs are often high and can cost you thousands of dollars even on a smaller loan of $200,000. If your refinanced loan has higher interest rates, then you may not end up saving money at all, even after getting rid of your PMI!
Make sure to research to see if refinancing is worth it.
3. Get a New Appraisal
The housing market is ever-changing which means that the value of your home may have gone up between the time you first took out your loan and now. If this is the case, your equity may go up and be at least 20%. Getting a new appraisal can help you determine if this is the case and provide you with a document to provide your lender with.
While you will have to pay for a new appraisal on your own, the results can help you save money on your mortgage and prove that you meet the equity threshold. It is worth checking with your lender before getting a new appraisal, though, as you don’t want to spend money on it only to find out you don’t meet other requirements.
Getting Rid of MIP
If you have an FHA loan, then you’re likely paying MIP (mortgage insurance premiums) instead. As FHA loans have different requirements, the process of removing MIP is different from the process of removing PMI.
1. Watch Your Loan Balance
There are several reasons to watch your loan balance even if you aren’t interested in removing MIP payments, but if you’re looking for ways to get out of paying MIP, your loan balance is a key tool.
If you’re watching your loan balance, you can keep an eye out for when you’re eligible to stop paying MIP. With FHA loans, you can remove MIP after paying it for 5 years on a 30-year loan and once your loan balance is at 78%. Your loan must also be in good standing.
Watching your loan balance will alert you the moment you’re eligible to stop paying MIP. If you don’t keep track of it, though, then you won’t know when you meet the requirements.
2. Refinance
Another way to get rid of MIP payments is to refinance to a conventional loan. If you meet all the approval requirements, this is often the most cost-effective way to remove MIP. Even if you are required to pay PMI, you’re often able to cancel these payments after two years and will end up saving money.
Refinancing to a conventional loan is typically possible even with just 5% equity. Of course, you may have to meet other refinance requirements, but a conventional loan may just be the best way to lower your monthly payments and save money on MIP.
For those who are veterans or active military members, refinancing to a VA loan is the best option. VA loans don’t have any mortgage insurance requirements and are designed to help military members and their families afford mortgages.
Refinancing to a VA loan is possible with any type of loan, whether it’s an FHA loan or a conventional loan. Even if you weren’t a member of the military when you first took out your loan, you can take advantage of VA loans now and refinance to save money.
Save on Your Mortgage. Cancel Your PMI or MIP
It’s no secret that mortgages are expensive, but if you know where to look, you can save money. Getting rid of your PMI or MIP payments is one way to do so. While knowing how to get rid of these payments isn’t common information, a little research can go a long way and help you know where to start looking.
Now that you know some of the possible ways to get rid of PMI or MIP, it’s time to contact your lender to take the next steps toward saving money and paying off your mortgage.
