PMI Explained: How to Get Rid of Private Mortgage Insurance
If you bought your home with a down payment of less than 20%, you are likely paying for Private Mortgage Insurance, or PMI. This extra charge, often rolled into your monthly mortgage payment, can add hundreds of dollars to your housing costs. Fortunately, PMI is not permanent.
This guide explains what PMI is and the steps you can take to get rid of it.
What is Private Mortgage Insurance (PMI)?
PMI is a type of insurance that protects your mortgage lender—not you—in case you default on your loan. Lenders see borrowers with less than 20% equity in their homes as higher risk. PMI is the lender’s way of insuring themselves against that risk. Once you have built up enough equity in your home, that risk is reduced, and you can eliminate the PMI payment.
How to Calculate Your Loan-to-Value (LTV) Ratio
Getting rid of PMI is all about reaching a certain Loan-to-Value (LTV) ratio. Your LTV is a simple calculation:
(Current Mortgage Balance / Original Home Value) x 100 = LTV Ratio
For example, if you owe $320,000 on a home you bought for $400,000, your LTV is 80%.
Two Ways to Get Rid of PMI
1. Request Removal at 80% LTV
The Homeowners Protection Act gives you the right to request that your lender cancel your PMI once your mortgage balance has been paid down to 80% of your home’s original value. Your “original value” is typically the purchase price or the appraised value at the time of purchase, whichever was lower. You must make the request in writing, have a good payment history, and may have to pay for a new appraisal to prove the home’s value hasn’t declined.
2. Automatic Termination at 78% LTV
If you don’t request removal, your lender is legally required to automatically terminate your PMI once your mortgage balance is scheduled to reach 78% of the home’s original value. This happens automatically, provided you are current on your payments.
Note: If your home’s value has risen significantly, you may be able to get rid of PMI faster by refinancing, but this involves a new loan and closing costs.
Why DomiDocs is the Best Tool for Getting Rid of PMI
The key to getting rid of PMI as soon as possible is knowing your numbers. DomiDocs provides the perfect tool to track your progress and empower you to take action.
1. Track Your LTV Automatically
The DomiDocs Home Equity Tracker is the easiest way to monitor your LTV ratio. Our platform tracks your mortgage balance as you make payments and shows you a clear picture of your equity. You can see exactly how close you are to hitting that magic 80% LTV mark, so you know precisely when to contact your lender and start saving money.
2. A Secure Vault for Your Documents
When you request PMI removal, you will need your original closing documents and mortgage statements. DomiDocs provides one secure, organized place to store all these files, making the process simple and stress-free. With DomiDocs, you have the data and the documentation you need to take control of your mortgage and eliminate unnecessary costs.
HomeLock™ is the one Property Fraud Protection service that CAN notify you before, during, and immediately after fraud occurs. If more homeowners had HomeLock™, we wouldn’t see so many scammers like this husband and wife who have defrauded dozens of homeowners!
See how DomiDocs and HomeLock™ can protect your home in this Press Release! This layered approach protects both your legal ownership and your financial identity. For more information, read our article on how HomeLock™ can protect you from Title and Deed Fraud.