Unlike homeowner’s or auto insurance, PMI will never help you one bit. So if you’re paying it, how do you get rid of it? Financial planner and teacher Rob has several ways to do that.
Here’s a riddle for you. What could be costing you well over a $1,000 a year yet you get absolutely no benefit from it whatsoever? If you guessed private mortgage insurance you’re right on the money! Unlike homeowner’s or auto insurance, PMI will never help you one bit. So if you’re paying it, how do you get rid of it? Financial planner and teacher Rob has several ways to do that.
PMI is not insurance for you but is for the lender in case you default on the loan. So unlike other types of insurance it won’t replace anything you’ve lost.
PMI typically costs between a half and 1% of the entire loan on an annual basis. So with a 1% fee on a $200,000 mortgage you’re paying $166 dollars a month ($2,000 a year) for PMI.
Get rid of it as soon as you can! How? The simplest (but not the easiest) is to pay down your mortgage. Take the purchase price of the home and multiply it by 80%. Next, pay your mortgage down to that amount. So if you paid $200,000 for the home, 80% of that value is $160,000. So if you pay the loan down to that amount you can have the PMI removed.
Another way you can get rid of this is to pay the mortgage down to 78% of the purchase price. At that point, the lender has to cancel PMI automatically. You can also pay the mortgage down to the midpoint of the term of the loan. Even if the amount of the outstanding mortgage hasn’t fallen to the 78% level, the lender has to remove PMI when at least half of the mortgage term has elapsed.
Refinance your mortgage. Maybe you were planning to do that anyway to take advantage of lower interest rates. In the process, you may be able to refinance without PMI in the new loan agreement.
The simplest way to get rid of PMI is to prove that the value of your home has risen to the point to where the outstanding balance of the loan is 80-percent or less of the home’s current value.
On this program we also answer your questions:
We’re over 65 years old. Is it too late to get long-term care insurance at a reasonable price?
I want to buy an airplane. How will this affect getting life insurance?
I have extra money that I’m able to apply to my mortgage each month. Is it better to apply that money to the principle or is it better to pre-pay the monthly payments? Or should I do both?
Should I buy a new car or get a used one instead?
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