Question: I believe the value of my home has increased substantially. Can I leverage this to remove the (Private) Mortgage Insurance from my mortgage?
Before responding, let me catch everybody up on some basics:
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Jake Ryon of First Home Mortgage explains (P)MI simply as “an additional payment a borrower has to pay to offset risk to the lender when the down payment doesn’t equal 20% or more of the sales price or appraisal value, whichever is lower”
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It’s included when the Loan-to-Value (LTV) is above 80%. LTV is the amount of your loan divided by its value. In other words, the value minus your down payment (80% LTV = 20% down payment). This is the basis for today’s question – if the value of a home increase, the LTV decreases (more owner equity), and may allow a borrower to remove (P)MI.
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The monthly cost is based on factors that include LTV, credit score, and loan size. Generally monthly payments range from about .25%-2% of your loan balance, divided by twelve
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Conventional loans = Private Mortgage Insurance (PMI); FHA loans = Mortgage Insurance (MI)
If you have PMI on a conventional loan…
Per Jake Ryon of First Home Mortgage, you can request that it be removed when the LTV hits 80% based on payments against the original value or the value of the home has increased enough to bring the LTV to 80% or less. For example, if the original value of your home was $500,000 and you currently have $450,000 left on the loan, a new appraised value of $562,500 would result in a new LTV of 80% and your loan servicer may agree to remove PMI. Some key points:
- You cannot have a late payment within the last two years
- The request must be made in writing to your servicer (who you make payments to)
- If you’re making the case based on increased value, you’ll need the loan servicer to order a new appraisal, at your expense
- It’s ultimately the loan servicer’s choice whether or not to remove the PMI
It will be automatically removed when:
- You reach 78% LTV on the original value of your home
- You reach the midway point of your loan and have not reached 78% LTV (e.g. 15 year mark on a 30 year loan)
If you have MI on an FHA loan…
If your FHA loan was created after June 3, 2013 and your original LTV was 90% or higher, your mortgage insurance cannot be removed at any point during the life of the loan and the only way to remove these payments is to refinance into a new loan once you can attain an LTV of 80% or less. If your mortgage was created before this date, your MI will be automatically removed at 78% LTV.
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