When can you stop paying private mortgage insurance?by Michele Lerner
Homeowners who make a down payment of less than 20 percent on a conventional loan must pay private mortgage insurance (PMI). Under most circumstances, mortgage insurance can be canceled once the homeowners have more than 20 percent equity in their property. Whether or not you can stop paying PMI depends on several individual circumstances.
Mortgage insurance payments
If you pay mortgage insurance on a monthly basis or paid an upfront mortgage premium followed by monthly payments, you may be able to cancel your mortgage insurance at some point.
If you opted for “lender-paid” mortgage insurance, which means that the lender pays the mortgage insurance premiums in exchange for a higher interest rate on your loan, you will not be able to cancel that additional interest you are paying until you refinance or sell your home.
Canceling mortgage insurance
The best way to find out about your specific mortgage insurance requirements is to refer to the mortgage insurance documents you received at your settlement. You can also call your mortgage lender to ask about canceling the insurance.
Mortgage insurance policies are legally automatically canceled once the loan balance is reduced to 78 percent of the value of the property at the time the loan was made. Borrowers can also request to have their mortgage insurance cancelled when their loan balance reaches 80 percent of the original value, but not every lender will approve the request.
Here are some reasons a lender might turn down the request, according to Jack Guttentag, known as “The Mortgage Professor”:
- You have a second mortgage on the property
- Your property has declined in value
- You have had late payments on your mortgage
Most lenders will require an appraisal of the property’s current value before agreeing to terminate the mortgage insurance policy.
If you want to accelerate the cancellation of your mortgage insurance policy, you can make extra payments to reduce the principal balance of the loan and therefore increase your equity more quickly.