How to Get Rid of Private Mortgage Insurance

Whether you’re a first time home buyer, or simply upgrading to a larger home, if you don’t have enough equity in the property, you’ll need to pay private mortgage insurance (PMI). Currently, the cut-off for PMI is 20% loan-to-value (LTV) or greater equity. For example, if you put 5 to 10% down on your home, you’re going to be required to pay for PMI, while if you put 20% down on the property, you are not.

Lenders have their own formula for calculating just how much PMI you’re going to have to pay and this can be based on the value of the property, your credit score, and how much equity you have in the property. For example, a home worth $200,000 with a 5% down payment would require around $150 a month in PMI.

This makes your monthly mortgage payment higher and it is vital that homeowner’s account for this before purchasing a property to ensure that they can easily afford the payments. However, you’re not always going to have to pay for PMI and eventually those payments will drop down to just your standard amount for principal, interest and any property tax or home insurance you have on the property.

3 Ways to Get Rid of Private Mortgage Insurance

  • There are three ways to get rid of PMI and start enjoying lower payments on your home loan. The first is merely to keep making your standard payments and wait for your equity in the home to grow to 20%. This can take time, but if you don’t have the option of paying extra on your mortgage every month, this may be the best solution for you.
  • The second option is to start making higher payments every month to accelerate how much equity you have in your home. This can take some discipline and while it is faster than simply making your regular payments, it will still take time to earn back your equity in the property. However, every little bit helps and the faster you can get the loan paid down, the quicker you’ll be able to save that additional amount every month.
  • The last way to get rid of PMI is perhaps the easiest and for most homeowners, it’s going to be the best solution since there are numerous benefits from utilizing this method. If you refinance the property, you will not only be able to take advantage of a lower interest rate, which will save you money, you can also have the property re-appraised and chances are, your equity amount is going to exceed 20%. If you still don’t have that magic 20% equity, you can get additional money on your refinance and use this to pay down the loan so that you will get the equity you need to get rid of your PMI payments.

Whichever of the three options you choose, you will eventually stop having to pay for private mortgage insurance. A smart decision once you’ve reached that milestone is to keep applying that money towards your monthly payment in order to pay down your loan even faster and keep adding to the equity you own in your home.

Expected FHA Mortgage Insurance Premium Increase

On Wednesday, January 30, 2013, the Federal Housing Administration (FHA) announced that they will be increasing the rates that they charge on insurance premiums for mortgage loans. This is just one of multiple steps that are being taken to the FHA, allowing them to shore up finances weakened by the recent economic woes. In addition to the insurance premium increases, borrowers will now be required to pay their mortgage insurance for the entire life of the loan. Currently, the reports have indicated that the expected increase for yearly premiums on mortgage insurance rates is expected to rise by 0.10 percent for the majority of new mortgage loans and 0.05 percent for any borrowed amounts that are $625,500 and over.

Coupled with the FHA’s mortgage insurance premium increase, any homeowner who has an FHA-backed mortgage will now be expected to continuously pay on these premiums, which are based on the unpaid balance of the money borrowed, through the entire life of the loan. There will no longer be a cancellation of premiums when the borrower has repaid 22 percent against the principal of the loan.

Any borrowed amounts that are $625,500 or more will now require homeowner’s provide an increased down payment towards the purchase price before they will be eligible for the loan. Currently the down payment rate is a minimum of 3.5 percent of the overall amount of the home that is being purchased. The percentage is expected to increase to 5 percent for a down payment prior to being able to obtain the loan. In addition to these increases in down payments to receive a loan, it will be increasingly difficult for borrowers to obtain a loan with poor credit scores as well as high debt to income ratios. Additional changes are currently being planned for reverse mortgage programs through the agency. These proposed changes are expected to only apply towards new loans and will be announced officially within the next few days, according to reports from the FHA.

FHA Commissioner Carol Galante released an official statement announcing that “these are essential and appropriate measures to manage and protect FHA’s single-family insurance programs.”

The FHA report at the end of the 2012 fiscal year revealed a $16.3 billion deficit in the insurance fund. The majority of the problems, they have determined, are tied directly to the various mortgage loans that were insured by the agency through 2007 to 2009. The United States Department of Housing and Urban Development announced to Congress in November 2012 that their claims against the FHA’s insurance funds, which are tied directly to these loans, are expected to reach costs of $70 billion.

The FHA has already increased their mortgage premiums four times since 2009 to attempt to protect them from any potential financial loss. Within the last year, the FHA provided insurance towards almost 1.2 million single-family mortgages. These have reached an overall total cost of $213 million. The reports from the agency have shown that approximately 78 percent of all the loans established during this time were provided towards first-time home buyers.