Mortgage insurance can be a significant extra expense for homeowners, especially for those who took out loans with a down payment of less than 20%. If you want to eliminate mortgage insurance before your loan balance reaches 80% of the home’s original value, several strategies can help you achieve that goal.
1. Make Extra Payments
One of the most effective ways to reduce your mortgage balance quickly is to make additional payments towards your principal. By paying extra each month or making lump-sum payments, you can accelerate the reduction of your loan balance. This approach not only helps you get rid of mortgage insurance faster but can also save you money on interest over the life of the loan.
2. Refinance Your Mortgage
Refinancing your mortgage can be a strategic move to remove mortgage insurance. If your home has appreciated in value since you purchased it, a refinance may allow you to access a lower loan-to-value (LTV) ratio without waiting for your current loan balance to decrease. Check with lenders to find options that may help you bypass or eliminate PMI (private mortgage insurance).
3. Request a PMI Cancellation
If you've reached a point where your loan balance is below 80% of your home’s current value due to appreciation, you can formally request the cancellation of your PMI. Contact your mortgage lender, provide them with recent home appraisals, and make a strong case that your current equity percentage qualifies you for PMI removal. It's essential to have evidence, such as a home appraisal report, to support your claim.
4. Increase Property Value Through Renovations
Investing in home improvements can significantly boost your property’s value. Simple renovations, such as upgrading kitchens or bathrooms, enhancing landscape, or even repainting, can lead to a higher home valuation. Doing so may help you reach the 20% equity threshold needed to eliminate mortgage insurance, while also increasing your home's market appeal.
5. Wait for Automatic Cancellation
If you prefer not to actively seek a way to eliminate mortgage insurance, remember that most lenders are required to automatically cancel PMI once your loan balance reaches 78% of the original purchase price, provided you are current on your mortgage payments. However, this means you will need to wait until you’ve reached that point, which could involve several years of paying PMI before it’s removed.
6. Track Your Home’s Market Value
Keeping an eye on your home’s market value is vital. Regularly check property values in your neighborhood and stay updated on market trends. If property values have increased, document this to support your request for PMI cancellation or to help inform your refinancing decisions.
By taking proactive steps to reduce your mortgage balance, enhancing your property’s value, and staying informed about market conditions, you can effectively remove mortgage insurance before your loan balance hits the 80% threshold. This smart financial strategy can lead to significant savings over time and provide greater financial freedom as a homeowner.
