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6 Creative Ways to Eliminate PMI

Private mortgage insurance often referred to as PMI is an insurance where lenders ask borrowers to pay when they get a mortgage if they do not have enough equity in their home. This mortgage insurance protects the lenders if in case you default on your loan. But it typically costs the borrower with $25 to $100 a month. So here are the 6 smart and effective ways to eliminate PMI.

Ways to remove PMI while you are already paying it:

1. Market value increases: If the market value of your home increases to that point that you achieve at least 20% equity, you might be able to eliminate the private mortgage insurance.

2. Compare the LTV (Loan to value) ratio: LTV ratio is obtained by dividing the loan amount by the value of your home. Most lenders recommend that the LTV ratio should be 80% or lower before they cancel your PMI. Your lender requires an appraisal when you are applying for cancellation of private mortgage insurance based on the many payments that you have made. He needs this as a reassurance that your home has not declined in value.

3. Avoid paying monthly premium: You can avoid your monthly mortgage insurance premiums by making a single payment during the time of closing. It can be paid as an upfront fee or can be financed into the loan. This premium is partially refundable if the house is sold or refinanced before the term of the loan.

4. Buy a home you can afford: If you buy a home that your budget can afford, then you are more likely to pay a down payment of minimum 20%. This will help you build equity faster and therefore eliminate PMI sooner.

5. Decide on a higher interest: Some lenders will waive off the mortgage insurance payments if you decide to pay a higher interest rate. The rate may increase from .75% to 1% depending on the down payment.

6. Lender paid mortgage insurance (LPMI): LPMI is a convenient way to avoid paying PMI when a down payment of less than 20% is made. With this program, you can completely eliminate PMI by making some adjustments to the interest rates. Your mortgage payments will be lower with an LPMI.

You can benefit better with tax deductions with an LPMI. Since there are a number of ways to get rid of private monthly insurance, the next time you make less than a 20% down payment try using any of such options to avoid paying the insurance premiums