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How to remove PMI from your mortgage
If you already have PMI on your mortgage, there are a few ways to remove it.
First, you need to understand your home’s loan-to-value ratio (LTV). The LTV is the difference between the amount of your loan and your home’s value. It’s easy to calculate your LTV: simply divide your loan amount by the value. For example, if you borrow $135,000 for a house valued at $150,000, your LTV would be 0.9, or 90 percent.
Your LTV changes over time, and once it reaches 80 percent or lower, the PMI is no longer a requirement. The simplest method to get to this point is to keep paying your mortgage as planned, but it can several years. Making extra payments will help you get there sooner.
An increase in your home’s value could also help you get rid of your PMI more quickly, whether it’s due to remodeling improvements or rising home values in your area. Consider getting an appraisal of
your property if either of these causes your home’s loan-to-value ratio to drop significantly (remember, in this case, a decrease is a good thing). If your LTV is below 80 percent, you should approach your lender to ask them to cancel your PMI, making sure to follow their guidelines.
If your lender doesn’t approve your PMI cancellation in a timely manner, make sure you follow up by sending letters that restate your request. Send these letters by certified mail and keep copies so that you have evidence in case you need to take court action.
Automatic PMI termination
Under the Homeowner’s Protection Act, your mortgage lender is legally required to cancel your PMI coverage once you pay down your mortgage to 78 percent of the principal, as long as you are up to date on your payments and do not have an FHA loan.
This act generally applies to homes purchased after July 29, 1999, but there are provisions for mortgages obtained before that date. Be sure to check the details to see if the act applies to your loan.
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