If you pay a premium to cover your mortgage loan, you probably want to eliminate that expense as soon as possible. When can mortgage insurance be removed? When can you stop factoring this expense into your budget?
Champions Mortgage, a trusted mortgage broker in Houston, TX, understands how private mortgage insurance works. We explain its purpose and how you can remove it below.
How Mortgages Work
People looking to purchase and own property typically don’t have extensive cash or hefty bank accounts to cover the significant costs. Therefore, an aspiring homeowner might apply for a mortgage to help pay for their new property. They provide the down payment and gradually pay the loan through mortgage payments.
What Is Mortgage Insurance?
Many mortgage brokers have a minimum amount for down payments. For example, you might purchase a $200,000 property. Your mortgage lender might require that you pay at least 10% of the full cost.
If you do not have $20,000 on hand, you don’t meet the minimum down payment. However, your lender might still allow you to take out a mortgage if you agree to pay for mortgage insurance. Mortgage insurance protects the lender’s substantial loan provisions.
You purchase the home even though you don’t meet the minimum. Then, you cover the insurance premium through your monthly mortgage payments.
When Can Mortgage Insurance Be Removed?
Homeownership gives you enormous advantages like security, stability, and an appreciating asset. However, taking out a sizable mortgage can be risky for the lender and debtor. Therefore, mortgage insurance is often a pesky but necessary added expense.
When can mortgage insurance be removed? How can you go about removing it? You have a few avenues to explore.
Automatic Mortgage Insurance Termination
Many lenders automatically cancel your mortgage insurance once you reach a specific ownership percentage. Automatic cancellation typically occurs when a debtor reaches the minimum down payment requirement for the overall property value.
This amount may vary by lender. However, more often than not, a mortgage lender requires that you pay the debt down to 80 percent.
Request PMI Removal
When can mortgage insurance be removed? If you reach the minimum ownership percentage but still pay the insurance premium, you can input a PMI removal request. You might also use a loan-to-value (LTV) ratio calculator to divide your loan balance by the original cost.
Contact your loan provider a few months before your balance reaches 80% or less. They can input your PMI removal request or inform you about their automatic cancellation policy.
Refinancing Your Home
Sometimes, mortgage rates dip below your current loan agreement. Refinancing can eliminate your PMI under such circumstances. Check your home equity and research the value of homes in your area.
Increasing property value and home equity can signify the perfect time to refinance and drop the PMI premiums.
Reappraisal and Minimum Equity
One of the perks of homeownership is that you can alter your new property to suit your needs in almost any way. Many home improvement projects, like renovations, remodeling, or electrical rewiring, can increase your home equity by default.
When you foot the bill for noticeable improvements that enhance property value and appeal, you often increase your ownership percentage. Schedule a reappraisal to determine how your alterations affected the property’s value. You can bid farewell to mortgage insurance if they raise the value in your favor.
Finance a New Life With Champions Mortgage in Texas
When can mortgage insurance be removed? No specific timeline dictates when you can remove your PMI. However, many lenders remove it when the debtor’s equity or ownership percentage significantly increases.
Champions Mortgage touches on other topics, like what portion of your income should be allotted for a mortgage. Call 281-727-2500 to learn about Texas homeownership options.
