If the down payment on your home was less than 20 percent of the sale price, your
lender probably required that you pay for Private Mortgage Insurance
(PMI). This insurance protects the lender in the event you default on the
loan.
But PMI should not become a permanent fixture on your mortgage payment. You should be able
to remove PMI once the equity in your home reaches 20 percent of the property value, either
because the loan balance has been decreased below 80 percent or because there has been an
appreciation of real estate values in your neighborhood.
But don't wait for your lender to call you with the good news. Lenders in most states are
under no obligation to tell you when your loan has reached the point where PMI is no longer
required, so you could end up paying PMI premiums for 10 years or longer.
Getting Rid of PMI
Here's how to make sure PMI is removed once you have 20 percent equity in your
home:
- Before signing the mortgage note, ask your lender for a written disclosure
stating when PMI premiums can be removed from the mortgage payment.
- Keep records of payments, noting how much of the principal is paid, and make sure you
are not late or delinquent in payments. Some lenders require a minimum of 12 or 24
consecutive monthly payments.
- When you believe you have reached 20 percent equity, contact the lender or servicer, by
phone and in writing.
- You may need to pay for a new appraisal of your property.
Other Ways to Build Equity and Remove PMI:
- Make an extra payment toward principal each month. Even $50 a month can mean a
dramatic drop in your loan balance. For more information, see the section on Prepayments.
- Renovate your home. Add a room or a pool that would increase the market value of the
home.
- Call a real estate agent familiar with your neighborhood to provide a competitive market
analysis of the value of your home, which may have increased significantly since your loan
was issued.
- Refinance your home with a different lender. For more information, see the section on Refinancing.