How To Get Rid Of Mortgage Insurance

And lower your payment forever!

In most cases putting less than 20% down will require you to get mortgage insurance. Mortgage insurance is an insurance policy that the borrower pays for to ensure the lender against foreclosure related losses. It is rolled in as part of your monthly housing payment. Putting 20% down means the lender puts up a loan of 80% of the value of the property. Thus, in order to get rid of your monthly mortgage insurance one would need to have a loan that is 80% or less (check with your exact lender for their specific guidelines) of the property’s value in order to get rid of mortgage insurance.

Case Study: A buyer purchased a home in March of 2021 at a price of $775,000 and put 5% down. The loan amount was $736,250. Fast forward to January of 2022 and this property is now worth $930,000 due to upgrades made by the buyer and the rapid price appreciation experienced across the market. Also, in that time the loan balance was paid down to $725,000. If we divide the loan balance ($725k) by the current value ($930k) we get a loan to value of 77.9%. This is less than the 80% needed to remove PMI. This buyer called the lender, the lender ordered an appraisal and boom, their housing payment was now $257 less every single month.

One thing to note is that the methodology above only applies to conventional loans. FHA loans with mortgage insurance must be refinanced in order to remove the monthly mortgage insurance.

Another thing to note with this example is that the borrower paid $257 per month for 10 months for a grand total of $2,570 in mortgage insurance payments. While that might seem like a lot they gained $155k in equity in that time period. Imagine if they had waited to save up 20% for a down payment! It could have taken years and they would have watched the same home be valued at 100’s of thousands of dollars more. (And likely paid a higher rate!).

Bottom line is this: mortgage insurance is a fee that few people want to pay. However, sometimes it’s most important to do what you can to get in the game. And with a strategy in hand to get rid of your PMI, you can do so knowing that you only have to pay it for a minimal amount of time.