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.

Are you stuck with mortgage insurance because you put down less than 20% when buying your home? You're not alone. In this post, we'll break down what mortgage insurance is, why you need it, and how to get rid of it. Let's follow the steps discussed in the video.

Understanding Mortgage Insurance

Mortgage insurance is a policy that protects your lender, not you. It's there to cover the lender's losses if you can't make your mortgage payments and face foreclosure. This insurance is especially important when your down payment is less than 20%.

The 80% Loan-to-Value (LTV) Rule

To ditch your mortgage insurance, you need to reach a specific Loan-to-Value (LTV) ratio. Typically, lenders want you to have an LTV of 80%. Sometimes, it's 78%, depending on your mortgage agreement.

Here's how it works: If you bought a million-dollar home with a 10% down payment, you got an $800,000 mortgage, resulting in a 90% LTV. But if your home's value increases, your equity grows, and your LTV drops. For instance, a 10% increase in your home's value results in a 20% equity and an 80% LTV, meeting the lender's criteria to remove mortgage insurance.

Taking Action

The process to eliminate mortgage insurance is simple. Contact your lender and inform them of your home's current value (x) and your remaining loan balance (y). They'll likely request an appraisal to confirm your home's value. If your LTV ratio is below the required threshold, say 80%, they'll remove your mortgage insurance.

*This does not apply to FHA loans. FHA loans must be refinanced to remove PMI.

Benefits of Removing Mortgage Insurance

Once you get rid of mortgage insurance, your monthly mortgage payments decrease because you're no longer paying the premium. This can save you a significant amount over your loan's lifespan. Plus, you'll build more equity in your home.

Eliminating mortgage insurance is a smart financial move if you've been making regular payments or if your home's value has risen. By following the steps outlined in this guide, you can reduce your monthly expenses and gain more financial freedom. If you put down less than 20% when buying your home, reach out to your lender and explore the possibility of removing your mortgage insurance. Your financial future will thank you!