For homebuyers, private mortgage insurance (PMI) is something that they have to deal with, especially if they don’t have the cash for a 20% down payment. However, once you’ve built up enough home equity, you might refinance your mortgage to cancel your PMI payments. The question is, should you?
Know If You’re Eligible First
Prior to refinancing, check first if you’re nearly or are already eligible for the automatic cancellation of your PMI. In general, PMI drops automatically once your loan to value (LTV) ratio is around 78% based on your home’s value at the time you established your policy.
In case you’re near the cutoff, it might be more sensible to wait for your mortgage lender to cancel your PMI instead of paying costs related to refinancing. Do note that if the government guarantees your mortgage, PMI is required for the whole loan term and your only option is to refinance your mortgage into a conventional loan to cancel your PMI.
Home Appreciation and Equity
If you’ve reached the automatic PMI cancellation point, there’s a chance that you could do away with PMI without having to refinance. In case your home’s value has increased since the time you took out your mortgage, your mortgage lender might be amenable to factoring in the appreciation of your loan and consequently cancel your PMI.
Is Refinancing the Best Option?
If you find that you don’t qualify for the automatic cancellation of PMI, you could refinance, but you have to make certain that it’s worth the cost. The simplest way to do this is to figure out if the amount you could potentially save if you stop making PMI payments is higher than the refinancing costs. You also need to ensure that you go with a lender that offers you the best fees instead of the best interest rate as rates change daily.
Keep in mind that if you want to refinance or perhaps find other no PMI mortgage loans, a top lender from Salt Lake City says that there’s little difference regarding rates from one mortgage lender to another and that you must calculate all related fees and costs prior to deciding on which lender to go with.
Refinancing and private mortgage insurance (PMI) may seem complicated, but you won’t think that way if you have the right people to work with. Still, it’s up to you to decide whether this is a good choice or not.