How to Get Rid of PMI Payments

Private Mortgage Insurance (PMI) is a type of insurance required by most lenders on home loans in which the buyer puts down less than a twenty percent initial down payment on the purchase price of the home he is buying. It is used as a form of protection by the lender whom assumes that the less money the buyer has invested in the property the more likely he is to default on the loan. Although it allows many buyers an opportunity to own their own home whom would otherwise not been able to due to the necessary twenty percent down payment, it can also increase monthly mortgage payments causing significant excess in mortgage expenses over time.

Difficulty: Moderate

Instructions

1. Make extra payments when possible or simply pay more than the necessary payment each month. Be sure you specify that the extra portion of your payment is to be applied to the principal balance of the loan. Every little bit counts so get in the habit of paying as much as you comfortably can over the normal monthly payment. You must reach the point in your loan where you have accrued twenty percent equity in order to get rid of your PMI. This is the fastest way to reach that goal.

2. Pay your mortgage payments on time. This will be one of the factors your lender heavily considers when you reach the twenty percent equity and are ready for your lender to drop the PMI.

3. Maintain the value of your home by doing regular upkeep and keeping it in optimal condition. The lender may want an assessment to prove that the property value has not decreased before allowing you to get rid of the PMI.

4. Avoid taking out any home equity loans or lines of credit which will reduce the amount of equity you have in your home.

5. Contact your lender when you believe you have met the requirements so you can complete the process.

Tips & Warnings

• Mortgages that were signed on or after July 29, 1999 are protected by the Homeowner's Protection Act of 1998, which means PMI must be terminated when equity reaches twenty-two percent.