Private Mortgage Insurance (PMI), while necessary in most cases, is a pain in the wallet! Without mortgage insurance, lenders would not be able to offer certain loan programs - especially loans serviced through the FHA. Depending on the circumstances of your loan and the insurance required, this can be a considerable cost. Fortunately, there are ways to
Like many things loan-related, there are multiple factors that go into determining the cost of your mortgage insurance. While these tips may help you to lower that payment, the effectiveness will vary from person to person.
Build Your Credit
As with interest rates on loans, PMI costs can be affected by your credit score. Mortgage insurance is designed to provide additional safety for the lender that extends the loan. The better your score, the less risk there is that you'll default on the loan. If you can improve your credit, you'll have a much stronger case for negotiating a lower mortgage insurance premium.
Pay Down Your Mortgage
Mortgage insurance is typically required when your down payment is under 20% of the value of your home. You can usually renegotiate it or have it removed entirely as you build equity. If you can afford it, make additional payments against your loan principal to pay it down and build equity faster; this will get you in a position to renegotiate your mortgage insurance sooner than you would otherwise be able to.
Refinance Your Mortgage
Provided that you can get a good interest rate on your new loan, refinancing is a great way to reduce the cost of mortgage insurance. Because you're taking out a new loan to pay off an existing one, any mortgage insurance that's required will be based on the new loan amount in comparison to your home's value. If you refinance with a loan that's for 80% or less than the total value of your home, PMI will not be required. Additionally, you may qualify to refinance with some government-backed loans such as those offered through the Dept. of Veteran Affairs or the Dept. of Agriculture.
Increase Your Home's Value
Another option for reducing or eliminating your mortgage insurance payment is increasing the value of your home. In some cases, this is simply a matter of having the property appraised again after some time has passed, allowing for appreciation in value. There are a number of external factors that can affect property value, and if your property sees a value increase then you can use this to renegotiate your PMI rates. If that isn't an option, consider home improvements or similar actions that will increase your home's value so you can get out from under the mortgage umbrella.
Talk to Your Lender
If you aren't sure what to do, talk to your lender or mortgage broker and see which options are best for your situation. They will look at your mortgage payment history and other factors to help you find a way to reduce that insurance cost. They can also help you calculate your equity and see exactly how much more you'll need to significantly reduce or eliminate your mortgage insurance obligations. If you've already built over 20% equity then you may be able to simply ask for the insurance to be cancelled in your first contact with the lender.
Ask the Experts
Since PMI costs can vary from person to person, it's always a good idea to find a professional to advise you about your specific loan situation. Let us know if you need recommendations for mortgage experts who can help you evaluate your personal situation and find the best way to reduce or eliminate your mortgage insurance costs.
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