Removing PMI Through Refinancing

By Karen Lawson Columnist

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If your loan to value ratio (LTV) was more than 80% when you bought your home, and you have a conventional mortgage loan, you're likely paying a monthly premium for private mortgage insurance or PMI. Private mortgage insurance protects your lender in the event you can't make your payments and the lender forecloses your mortgage. If you've owned your home for awhile, and have accumulated enough home equity, you can ask your lender to remove the PMI coverage. You'll have to pay for an appraisal, and follow up on the cancellation. Another way to stop paying for PMI is refinancing your mortgage once your loan to value ratio is 80% or less.


Alphabet Soup: The relationship between LTV and PMI

Your LTV ratio is the amount of your mortgage balance divided by the current value of your home. If you bought your home for $300,000 and took out a mortgage of $270,000, your LTV was originally 90%, and you're probably paying for PMI. If your home's value has increased significantly, PMI may no longer be required if your LTV is now 80% or less. It's up to you to confirm your home's value and to contact your lender about canceling PMI. Your mortgage lender will require an appraisal to establish its current LTV. They may ask you to use an approved appraiser, and you'll have to pay for the appraisal. In some cases, lenders may not want to cancel PMI coverage. What can you do then? Refinancing your mortgage can eliminate the cost of PMI if you have enough home equity.

Comparing Costs, Savings and Refinancing Options

Of course, refinancing your mortgage also involves costs. You'll want to look at the big picture of your home equity, household budget, and consider all advantages of refinancing before proceeding. A financial advisor can help you identify potential savings associated with tax deductions, paying off high interest credit card debt, eliminating PMI, and other benefits of refinancing.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.

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