Avoid These Private Mortgage Insurance Mistakes


If you put down less than 20% on a home, you’ll pay private mortgage insurance. Before you just accept what the lender has to say, though, you should understand the biggest PMI mistakes to avoid. PMI can add a significant amount to your mortgage payment.

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Knowing your rights and responsibilities as it pertains to PMI can help you avoid some of the biggest mistakes.

Mistake: Not Keeping Tabs on Your Home’s Value

Your home’s value continually changes. Even if you don’t do anything to enhance the home, the value may still appreciate based on what the home’s around it do. If your home does appreciate, you may be able to cancel your Private Mortgage Insurance sooner than you think.

Lenders aren’t required to cancel your PMI until you owe 78% or less of the home’s value. But technically, you can request cancellation as soon as you owe 80% or less. This is why it’s important to stay on top of your home’s value and compare it to your outstanding principal balance. If you get down to an 80% LTV, request cancellation of the PMI in writing. Just know that you’ll have to pay for an official appraisal for the lender to approve it.

Mistake: Not Paying Attention to Your Loan’s Outstanding Balance

Even if your home doesn’t appreciate, you may still cancel PMI when you owe 80% or less just from paying the principal balance on your loan down. If you follow the minimum payments that are on the amortization table, you’ll know exactly when you can cancel PMI.

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But, if you pay more than the minimum amount due, you may be able to cancel the PMI even sooner. If you don’t pay attention to how much you have paid down compared to the home’s value, you may pay PMI longer than is necessary.

Mistake: Not Requesting Cancellation in Writing

Don’t make the mistake of calling your lender and assuming they will cancel PMI for you. Everything has to be in writing. In most cases, you’ll also need an official appraisal. This requirement may vary by lender. Some lenders may just do an automated valuation on your home or even a quick drive-by appraisal. Either way, make sure you know the lender’s requirements before you make any assumptions.

Mistake: Not Staying Current on Your Payments

Beware that even if you are entitled to cancel PMI because you owe less than 80% or even if you’ve hit the 78% mark, the lender won’t’ cancel your insurance if you are behind on your payments. The PMI protects the lender should you default on the loan. The risk comes down once you owe less than 80% of the home’s value. If you are behind on your payments, though, the risk goes right back up, which means you won’t be able to eliminate PMI after all.

Private Mortgage Insurance protects the lender and only the lender, but you are the one that pays for it. You benefit by doing whatever you can to get rid of it. Just because your lender says you must pay it for the next few years doesn’t mean it’s written in stone. There are ways that you can get around it, but you have to be proactive in your efforts.

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