How to Get Rid of Private Mortgage Insurance

Are you still paying private mortgage insurance (PMI) but would like not to? If you meet certain criteria, you can stop paying it. This piece from Market Watch tells how to get rid of private mortgage insurance. Here are their main thoughts:

People used to have a devil of a time getting lenders to drop coverage. But that changed seven years ago. You must be up-to-date on your house payments and have no other loans on the house. Also, the lender must be satisfied the property's value has not declined. But otherwise, coverage must be canceled.

Under the law, the lender must cancel coverage at the borrower's request when the loan is paid down to 80% of the property's original value. But if you forget to ask, policies must be terminated automatically when the loan balance reaches 78% of the home's value at the time it was purchased.

Good advice. However, I like my advice better. It is:

1. Buy a house you can easily afford, putting at least 20% down.

2. Put extra payments into your budget.

3. Put bonuses, gifts, second job income and all other "extra" sources of money into paying off the loan.

4. Become debt free in 7-10 years.

My wife and I have been debt free for almost 8 years now and believe me, it's a great feeling.

Comments

[Dan]

Another option is to avoid getting PMI in the first place. We bought our home around Memorial Day 2004 and could only afford a 10% down payment. I hate the concept of PMI, so we instead chose to add a piggyback HELOC. There were three major benefits: 1) we weren't wasting our money on PMI, which we receive no benefit for, 2) the additional interest is tax-deductible, and 3) the HELOC allowed us a little extra flexibility to tap into what little equity we had at that point to make some important first-home purchases.

Without a doubt, this is an approach that entails some risk and requires discipline to execute. But since I'm fanatical about paying down debt, I wasn't concerned. We did make a few purchases for the home, but right away we began paying well above our minimum payments. Around May 2004 (one year after we bought the home), after paying down some other debts, we began to allocate every spare penny we had toward paying down the HELOC, and by June of this year it will be wiped out as well.

We'll probably never be in the position of needing PMI again, but if so I would do the same thing.

[Karen]

I agree. When we bought our house, we did a traditional 80% first mortgate and then a 15% second mortgage. This is because we hadn't yet sold our old house. Once we sold our old house, we paid off the second mortgage. This took about 4 months all in all but we avoided paying PMI and we'll get the tax benefit of the second mortgage.

[Jon]

Thanks for posting this. I was told when I closed that it would be 5 years before it could be cancelled. I've since converted to a rental property, and keep thinking about how much money I'm throwing away. I mailed a letter to Chase just now telling them they had to remove my PMI. This will save me about $300 in 2007. Now that's a reason to keep reading your blog if I've seen one!