Private Mortgage Insurance Removal

Private mortgage insurance (PMI, in the home-loan industry) is the bane of homebuyers. It is an insurance policy for the lender, to ensure payback of the loan in the event of default. Most mortgage lenders require that the mortgage include private mortgage insurance if the amount borrowed is 80% or more of the home’s appraisal value.

The kicker in this is that the borrower, the homeowner, is the one who pays the premiums. The lender gets the policy and the benefits; the borrower gets the premiums built into his house payment. This is what makes private mortgage insurance removal so important.

Many homeowners don’t realize this, but private mortgage insurance removal should be automatic when the balance remaining on the mortgage gets below 80% of the home’s value. At that point, the borrower needs to start checking his mortgage statements carefully; if the PMI is not removed, he can take the records to the lender, show the increase in home equity, and have it removed.

Private mortgage insurance removal will have several benefits for the borrower. For starters, it will reduce his monthly house payment, as the premium will no longer be part of it. Secondly, it is a visible sign that the mortgage is getting paid, and that the home’s equity is rising. Finally, removal of the PMI is a sign that the borrower has more flexibility with his mortgage. Having built up equity, he may be eligible for better refinancing terms, or even an equity loan, to increase his cash on hand.

In short, the sooner a home buyer can get the private mortgage insurance removed, the better.