Home Mortgage Refinancing Guide

Private Mortgage Insurance (PMI) is an insurance policy that protects mortgage lenders from certain losses in the event of foreclosure on your loan. If you are refinancing your mortgage with less than 20% equity your lender may require that you purchase private mortgage insurance. PMI does absolutely nothing for the homeowner, it only protects the lender.

Private mortgage insurance can be expensive and add hundreds of dollars to your monthly payment; however, you don’t have to keep it forever. Once you have 20% equity in your home you can contact the lender and request that they cancel the policy. If you’ve kept your payments current most lenders will cancel PMI early once you meet the equity requirements.

There are ways to avoid Private Mortgage Insurance and save thousands of dollars in premiums. On way is to refinance your mortgage with an 80/20 loan. This is actually two loans and often from different lenders. The first loan is for 80% of the amount you are borrowing and the second covers the remaining 20%. Using an 80/20 mortgage to refinance alleviates the need for Private Mortgage Insurance if you have less than 20% equity in your home.

Cancel Your Existing Private Mortgage Insurance

If you’re stuck paying PMI on your existing mortgage, your lender is legally required to cancel the insurance once your balance drops below 78% of the purchase price. Note that is figure is based on “purchase price” and not equity in the case of rising home values; however, you can still request that the policy be cancelled once you have 20% equity if your payments are current. It might be worth your while to pay for an appraisal to prove that you meet the equity requirements to have your PMI cancelled.