Do I have to refinance to get rid of PMI?
You do not necessarily have to refinance your home mortgage to get rid of private mortgage insurance (PMI). Refinancing is one option when looking to remove your PMI, though it is not the only way to remove PMI.
If your home has increased in value and mortgage rates have dropped since you originally got your conventional home loan, refinancing is a good way to remove PMI.
When removing PMI on a conventional loan through refinancing, you will want to make sure interest rates have dropped since your original mortgage. In the case that interest rates have risen since your original mortgage, you could end up saving some money* on your PMI but pay more over time through interest rates.
If you are looking to refinance your conventional loan and you own 20% equity in your home, your lender will confirm your home equity and PMI will immediately be eliminated during the process. When refinancing a loan, talk to your lender about any closing costs you might have to pay.
Connect with a trusted lender today and find out if refinancing to remove PMI is the right option for you.
What is PMI?
PMI, or private mortgage insurance, is insurance for a lender’s benefit. PMI makes homeownership possible for borrowers who can only afford a lower down payment option.
If you are looking for a conventional mortgage but aren’t able to afford a 20% down payment, a lender will require you to get PMI. With a smaller down payment, borrowers will have less home equity, which lenders can see as a higher risk of borrowers defaulting on payments.
PMI minimizes risk to lenders by covering missed payments. However, PMI does not prevent foreclosure or any decreases in a borrower’s credit score.
Your PMI cost will be added to each monthly mortgage payment. The exact cost of your PMI will be determined by your lender, loan amount, credit score and mortgage type.
Will getting rid of PMI lower my mortgage payment?
Yes, getting rid of PMI will lower your monthly mortgage payments. After you reach a minimum of 20% equity in your home and get rid of PMI, your mortgage payments will be reduced by the PMI amount you were paying.
Other ways to remove PMI
While refinancing your home loan can remove PMI, it is not the only way to remove PMI.
Once your home equity reaches 20%, you have the option to request cancellation on your PMI. Some lenders may ask you for a home appraisal to ensure your home equity is at least 20%.
If you have the available funds, you could also pay a little extra toward your mortgage and get 20% home equity quicker. If this is something you are considering, talk to your lender about ways and when you can pay on top of what is required.
If you are looking for a more hands-off approach, your monthly PMI payments will automatically be stopped when your loan to value reaches 78%.
Should I recast or refinance?
Deciding between a mortgage recast or refinance depends on your needs.
A recast doesn’t get you a new mortgage like a refinance does. Instead, with a recast, you pay a lump-sum toward the principal on your loan, and your lender will recalculate a new monthly payment based on your balance.
A mortgage recast won’t remove your PMI but can help you get to 20% home equity quicker, which will allow you to cancel your PMI.
PMI vs MIP
Similar to PMI, mortgage insurance premium, or MIP, helps reduce the risk for lenders when a borrower isn’t able to make a 20% down payment. The main difference between the two is that while PMI is typically used on a conventional loan, MIP is used on FHA loans.
Many borrowers will pay MIP for the life of their FHA loans, but if you are able to make a down payment of 10% or more, MIP is required for only 11 years.
If you are looking to remove the MIP on your FHA loan, your best bet might be to refinance your FHA loan into a conventional mortgage after you have acquired 20% equity in your home.
How can I apply for a mortgage refinance?
If you are looking to start the application process for a mortgage refinance, you can check current rates, prepare the necessary documents for your lender and get a home appraisal.
Before your refinance, you will want to check current interest rates again. Refinancing with lower interest rates could reduce your monthly payments and save you money.
For a mortgage refinance, your lender will want to see your pay stubs, tax returns and current mortgage. Lenders will also want to check your credit score. All this will help lenders figure out the details of your mortgage refinance.
Lenders will also require a home appraisal to determine the amount of equity you own in your home. This is an important step if you are looking to remove your PMI.
With all your documents together and appraisal finished, you will be ready to apply for your mortgage refinance!
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
Rate is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code.
*Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate for current rates. Restrictions apply.
