How To Get Out Of Private Mortgage Insurance

Banks typically make homeowners with less than 20 percent equity add private mortgage insurance (PMI) premiums to their mortgage payments. The insurance helps the lender guard against the borrower defaulting on the loan. Owners who want to lower their payments can work toward getting rid of the insurance, but doing so can be tricky.

DollarVersity explains the ins and outs of PMI, noting that owners can cancel their policies when they’ve built up 20 percent equity. Legally, mortgage holders must cancel PMI if the loan balance drops to 78 percent of the original purchase price.

Those who shell out extra payments in order to increase their equity sometimes run into hitches, though. Legally, banks can wait until the date on the original amortization schedule at which the owner’s equity would reach 20 percent to drop the insurance.

The best way to get out of PMI is to avoid it altogether, either by putting together a 20 percent down payment or taking out a second “piggy back” loan to generate the equity.

The Truth About Private Mortgage Insurance & How To Cancel It [DollarVersity]

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  1. Rebecca K-S says:

    We got out of PMI by refinancing and having the appraisal be 15% higher than the 2007 purchase price, so that was nice. Not gonna work for most people who bought in that time period, of course.

  2. RickN says:

    >>Legally, banks can wait until the date on the original amortization schedule at which the owner’s equity would reach 20 percent to drop the insurance.

    Interesting. I didn’t know that.

    That said, Citimortgage gave me no problems when I hit 80% and wanted to drop PMI.

    • plasmatop says:

      Even though we can do that, no one in the industry does. It’s unheard of. The shitstorm it would cause if we started doing this would be pretty great.

      • crispyduck13 says:

        I know for a fact that when I applied for and was approved on an FHA mortgage in 2010 part of the deal was PMI was mandatory for minimum 5 years, even if you hit your 79% mark at year 3. On top of that you had to pay 2% up front as an insurance “premium”. Biggest ripoff ever, I told them to shove it and went USDA instead. I don’t know if the 5 year thing is still the case, they change their rules constantly.

        • AustinTXProgrammer says:

          I went USDA. My income is up and my home value is down so I can’t refinance to a lower rate and keep my PMI free loan (no longer qualify for USDA).

          • crispyduck13 says:

            Yeah those income qualifications were brutal, I actually felt lucky that I was underpaid. I did not know that about refinancing under USDA, I (stupidly) thought it would just revise my current mortgage, not apply for a new one. I was actually thinking about doing it after the new year, but I got a substantial raise since the original purchase, now I won’t qualify.

        • plasmatop says:

          FHA loans are in their own world of problems during approval.

        • Megladon says:

          Same thing, they said 5 years no matter if I put down 19% and hit 20% in the 2nd month. My agent told me “if you have any savings that will make you any money over the next few years just get the va loan and avoid putting the 20% down and make money on whatever you can over the next 5 years”

  3. clippy2.0 says:

    You know, maybe it’s me, but I feel like most of the folks who are on this site live in area’s where 20% down is impossible. I wish people would stop advising it; especially when in terms of a total cost perspective, it’s not worth it. Saving up 20% to avoid an extra 3-4% total cost, when that means at the start a difference of usually 10s of thousands of dollars, is not realistic advise.

    • Cor Aquilonis says:

      At my current, middle class income and my current, high savings rate, I could buy a small starter home (withing a reasonable commute to my work, in a decent neighborhood) outright in about 5-6 years. If I want to stay on “my side of the river”, and go in a pretty nice house or condo in a quite good neighborhood, 8-10 years.

      I’m just saying, not everyone lives in an insane real estate market.

      • thezone says:

        Given interest rates now why in the world would you want to buy a house outright in 5 years when the bank will give you a 4% loan for 30. If you didn’t put the 20% down the overall percentage rate would be just over 5% and some change. Next you subtract the mortgage rebate so the 4% is really closer to 3% plus the 1% and change of pmi. Now subtract inflation because every year that money is worth less and you are left with a real cost of your loan being around 1 to 1.5%. If you invested the money you would have been sending to the bank early for those 30 years you will make more. BTW I know all these rates because I just refinanced my home. The money I’m saving will go right to my retirement. While some people will own their home I will have liquid funds available to me.

    • BrianneG says:

      We put down 20% in southern California. We especially didn’t want to pay PMI or MIP though our mortgage broker was trying to encourage an FHA loan.

    • dangermike says:

      Life-long Californian here, and here’s my perspective on it:

      When the market finally looks like it will be worth entering (still priced too high), I would far rather pay a full 20% down payment and avoid PMI. The reason is, generally, around here, prices are so high that you basically have to max out the payment to your income’s ability to service it. For families taking in about $85,000 a year, 30% D-to-I would allow for $2125 per month for the mortgage. A typical middle class home might be going for $350,000-$400,000. With the 20% down payment, the monthlies with tax and property insurance, that $400,000 home would have a monthly payment pretty close to that $2125 payment. that same income, assuming a 3% down payment purchase with PMI would be looking at a similar monthly nut for a $360,000 purchase, with about $1900 going toward the principal, interest, tax, and property insurance and another $150-$200 for PMI. The difference between a predominantly $350,000-ish neighborhood and a $400,000 neighborhood here is actually rather stark.

    • soj4life says:

      I am sure a sizable amount of people pay pmi, mostly those that have owned less than 5 or 10 years. I know it will be a couple of years before we get below 80%, even when we put down 10%. The upfront interest just kills your ability to get your principal balance down fast.

  4. az123 says:

    It is a lot like most things, if you made all your payments on time and you hit 80% (may actually have to ask the bank) they will kindly cancel it… if you are someone who has a history of late payments and other issues they will probably be a bit more resistant

    • plasmatop says:

      Most people don’t know this, but if you fall below 80% loan to value ratio and don’t realize it until say you get to 78.5% when you write your request to cancel PMI you can request it be cancelled back to the date you hit 80%. If you have refundable PMI, you would get a good size refund if you’ve been paying it for months without needing it.

      However, your mortgage servicer would probably not send you the check but rather deposit it to your escrow account. You wouldn’t end up getting that money back until you went through your next escrow analysis.

  5. airren says:

    I have a stupid question. If most people had PMI during the mortgage crisis, how come the insurance companies didn’t take the hit instead of the banks during all the foreclosures?

    • kaptainkk says:

      It’s really not a stupid question. I was wondering the same thing.

    • plasmatop says:

      PMI does not cover the full amount of the loan. The max is 30%.

      • Nigerian prince looking for business partner says:

        Wouldn’t that still make for sizable losses during a foreclosure crisis? Losing $30,000 or $40,000 per foreclosure, multiplied a few hundred thousand times would definitely add up.

        • plasmatop says:

          PMI was not designed to keep the banks afloat if everyone defaulted. It’s designed to cover the costs associated with foreclosing on a property and recouping a minimal amount of the banks investment.

          If every person in the US suddenly needed to use their health insurance do you think the health insurance companies would be able to handle the costs? No. Insurance companies make money on the gamble that those who have purchased insurance won’t need to use it.

          • airren says:

            Well right, but not everyone defaulted, and a huge amount of people every year use their health insurance for costly procedures – probably more than people defaulted on their mortgages.

            • plasmatop says:

              PMI costs are typically pretty low whereas health insurance costs are outrageous. The highest monthly PMI payment I have come across is $270 a month. And the next highest is less a hundred dollars than that. Most PMI premiums where I work are under $100 a month. The average is probably $50.

    • Fineous K. Douchenstein says:

      Isn’t the insurance company that handles PMI also a bank, such as AIG?

      • plasmatop says:

        AIG does provide MI services. I’m not sure they could provide it on their own loans or why they would even want to.

    • consumeristjohnny says:

      PMI basically covers costs associated with the foreclosure and collections. When the real estate market is hot, this is great because the cost of the foreclosure is covered, and the bank makes a tidy profit on selling the foreclosed property. Insurance companies took a HUGE hit (AIG) when the real estate market crashed. They paid out more in the insurance based on volume.

  6. Rachacha says:

    I don’t remember who the writer was, but there was a housing expert that would write in his column that you should request in writing to have the PMI canceled, and if they did not do it, pay your mortgage as normal (including the PMI) and then take the bank to small claims court for the PMI fee, win the case (likely by default) and collect the fee + court costs. Wash, rinse & repeat. After a few monts of having to refund the PMI fee and court costs, they will drop the fee.

    This was several years ago before the housing market crashed and I think before the automatic removal at 78%LTV.

  7. Cat says:

    Sweat equity. We helped to build our house, knocking about 20% off the price.

    Unfortunately, we could sell it for exactly what we owe now, our sweat equity has evaporated.

  8. plasmatop says:

    I work for a mortgage company and run into PMI questions all the time. One of the other ways to get PMI removed is if your property value has increased you can get the property reappraised. If the new appraisal price increases your equity greater than 20% you can then have PMI removed. Before doing this though, contact your mortgage servicer. Most will not take any appraisal report. The appraisal will most likely need to be done by one of their appraisers and you’re required to pay for it. We get a lot of people who send us new appraisals that they paid $300 or more for that are worthless.

    Generally, you also need to have had your loan for more than one year before PMI can be removed unless you’re below the 78%. You also need to have your loan current and in good standing. So no 30 day late payments in the last year and no 60 day late payments in the last two years. Even if your loan to value ratio is below 78% but you are not current we are not obligated to remove it.

  9. kiltman says:

    I am dealing with this right now. I bought in 12/2003 and figured to pay extra later this year to get the PMI removed. I called my mortgage company, Bank of The West, and they stated that without an appraisal putting me below the 89% LTV I would be paying till the date stated on my contract which was sometime in 2019. Even if I paid the extra to be below 78%. None of this makes any sense.

    • kiltman says:

      Sorry, meant below 80% LTV.

    • plasmatop says:

      Legally they don’t have the cancel MI until the date your reach 78% on the original amortization schedule. Not many banks do this and it may require some fighting on your part. Keep going up the chain of command and be the biggest annoyance possible. Eventually someone will give you what you want so you leave them alone. Don’t back down.

    • Extended-Warranty says:

      It doesn’t make sense to pay 17 years of PMI either

  10. Nigerian prince looking for business partner says:

    “The best way to get out of PMI is to avoid it altogether, either by putting together a 20 percent down payment or taking out a second “piggy back” loan to generate the equity.”

    Are banks still issuing 80/20 mortgages or other variations of 100% LTV? I was under the impression that anything above 80% LTV was done away with at the beginning of the financial crisis. Prior to 2008, it seemed like everyone was either doing 80/20 or 80/10/10 mortgages because the interest on a second mortgage was still lower than paying PMI. The interest on a 2nd mortgage was also less than the equivalent amount of money would earn if invested, which encouraged 100% financing even if a down payment was possible.

    • longfeltwant says:

      Two years ago I bought a house with 15% down. I had above-average credit, though.

      Then a few months later rates dropped, and I had some extra cash, so I re-fi’d do 20+% down, got rid of the PMI, and dropped my monthly payment by a bit. I don’t know whether or not it was strictly “worth” the cost of the re-fi, but it sure feels nice.

    • crispyduck13 says:

      FHA is still doing 95% and USDA does 100%, albeit with a small “insurance fee” of 3.5%. These are not “traditional” bank mortgages though, but yes you can get a loan for over 80% of value.

  11. Laita says:

    There isn’t a bank in this country that will give you a “piggy back” loan right now. Back in 2001 when I bought my first house, I only had 5% for a down payment and was able to get a piggy back loan for the remaining 15%. I was able to get rid of it when I refinanced my primary mortgage less than a year later at a 2% lower mortgage rate and found out my home was worth $50k more than when I bought it (ah, the good old housing bubble days).

    Fast forward through the mortgage crisis: It’s 2010, I sold my first home and wanted to purchase a new one. With just over 15% to put down and perfect credit (FICO score 815), I barely got a new mortgage, never mind a piggy back. My husband – also very good credit – was now an independent contractor and didn’t have >2 years of 1099s, so we were rejected outright. My loan originator (from a big bank) with whom I had been working for the past 10 years literally told me to go to a small local bank because he was too hamstrung by their new criteria to be able to help me. I needed to find a bank that would review our situation logically and not via some matrix. Since we now had no loyalty to anyone, I shopped around every mom and pop bank, credit union, mortgage company and big bank in the area – not a single one would give us a piggy back loan. Same answer every time: “no one does them anymore – they got us in too much trouble”.

    We did get a mortgage from a small local bank and just last month refinanced it to 3.99%! We put a lot of work in the house and it appraised for $30k more than we paid (no small feat in this economy) and were able to get our debt:equity ratio to 18.8%. Still perfect credit. And I STILL could not get a piggy back loan or get rid of PMI. It just cannot be done without 20% equity in this economy.

  12. maxhobbs says:

    But you normally have to get a re-appraisal ($400+) to be able to do this, and then pray that your house value hasn’t dropped.

    Gee, why not recommend to people to buy homes they can actually AFFORD and only do so if they have at LEAST 20% down?

    • ilovemom says:

      That’s what I though too, but Wells Fargo removed my PMI as soon as I was below 78% LTV. Based on what I’ve read about Wells Fargo I was preparing myself for a long, painful battle to get rid of PMI, but the process was simple. I don’t think there’s much incentive for the bank to keep you paying PMI; I don’t think they make any money off of it (though I wouldn’t be surprised if there were some shady deals between banks and mortgage insurers).

    • sjackson12 says:

      I got PMI with my home. I have no problem paying the mortgage, but paying that and PMI is better than continuing to throw money away on rent every month.

      • NeverLetMeDown says:

        Rent: Throw away money on rent. No upside if housing prices increase. No cost certainty if rents increase..

        Own: Throw away money on interest (net of tax benefit). Upside if housing costs increase. No protection if housing costs decrease (should you ever need/want to sell).

  13. Nuc says:

    Hmm…no idea if I have PMI :/

  14. tinyninja says:

    Former loan officer here.

    I can’t believe you are recommending a piggy-back loan. Those things are poison. The interest rate is sky high, and the only way to get rid of it without paying it off is to refinance. When you roll the two loans together you lose your ultra low rate on the other loan–the rate on your new loan comes in somewhere in the middle.

    The best way to avoid PMI is to rent cheaply, save your money, and buy your new house with cash as I intend to do.

    • EnergyStarr says:

      i have an 80/20, it’s the only reason i don’t regret buying a house in 2006. i refi’d the 80% loan to a 4.5% (no PMI since i wasn’t originally paying PMI), and am over-paying the 20%.

      i can’t do much about my home losing 25% of its value, but i’m paying less than i would pay in rent.

    • thezone says:

      I’m sorry but it doesn’t make any sense to buy your house in cash. If you have 20% down you can currently get a 4% 30 year loan. After tax incentives and inflation adjustment your loan is really only costing you .5% That extra 80% can be invested in securities and make more money than you were going to save. In fact, if you had purchased when you had 20% the extra money you had would have been already making money. When interest rates are this low take the loan. It helps your tax liability and allows you to keep your money liquid rather than tied up in your home.

  15. wackydan says:

    Suntrust automatically dropped PMI on ours…. Wasn’t that long either.

  16. JohnDeere says:

    when i got my home loan with B.O.A. i was able to take a day long class to get out of the pmi. now that the rates are so low, they no longer allow that option, so i could save 2% on my rate but still make the same payment. or do nothing till im 20% in. as a side note, i think they get appraisals from zillow. when i tried to refinance, the appraisal she gave me was within $400 of the zillow appraisal. since then my zillow appraisal has went up over $20k, maybe i should just try now lol.

    • Rebecca K-S says:

      When we had an appraisal done, my husband asked the guy about Zillow’s estimates, and the guy pretty much just laughed at him. They’re pretty ridiculous. Our estimate was $76k nine months ago when we had the appraisal, and it’s $131k now. We actually appraised at $92k.

  17. BradC says:

    There are a few 100% no-PMI options out there, so if your credit is good then refinancing could get you out of PMI.

  18. SPOON - now with Forkin attitude says:

    an appraisal can get you out of it too, if it shows an increased value.

  19. deucer says:

    Key Bank offered me a PMI free loan as a first time home buyer in order to add me to their personal portfolio. These portfolio loans would not be resold to another bank. No extra fees, no increase to my mortgage rate. A pretty sweet deal.

  20. Extended-Warranty says:

    Or if you live within your means, you don’t have to pay PMI.

    I don’t speak for everyone. However, PMI aside it baffles my mind that people don’t see a problem that they couldn’t save up enough money to put down a down payment of 20%, but they think they can pay 100% over the next 30 years (close to 200-250% when it’s all said and done).

    • crispyduck13 says:

      I see your point, but you’re asking the question like people seek that situation out, when more than likely it is the only way they can get into a house and stop throwing away money on rent. In a perfect world I don’t think people would choose to finance their home to the max and have to pay that PMI penalty every month on top of it.

      As an example, in my area rents are very close to mortgages, if you have kids and want to rent a house in a decent school district that isn’t a complete dump you will pay over $1000 per month, no question. Personally I was paying $1200 for a small house in a small town that had everything we needed. I just bought a similar looking house 5 miles away and my mortgage is $1192 per month (no PMI). So the whole “rent until you save up 20%” isn’t always an option for people. Especially when those people can’t chill in a relatives basement and save all their cash, or have access to a rental market that doesn’t rival a mortgage.

  21. Slatts says:

    We bought a bank-owned foreclosure property that was also a major “fixer-up-er”. It took a lot more that we had anticipated to get the place into a livable condition, as the previous owners had not been kind — after the parents had walked away from the property, their teenaged kids had kept keys to the place and used it as a party house. It was pretty bad.

    But the good new was that evil Wells-friggin-Fargo actually let us out of the PMI after only 2 payments because their appraiser said that it had appreciated that much due to the improvements. The timing helped, too, as the homebuyer’s tax credit, c. 2009-2010 caused a small, temporary bump in prices that put us just over the PMI threshold. It can be done.

  22. Boo LaRue says:

    I have an FHA loan with Citi, and meet all the requirements for dropping PMI otherwise. They refuse to let me out of it. Bastids.