How can I avoid paying private mortgage insurance (PMI)?

Real Estate, Insurance
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October 2016
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PMI may not be something you can avoid if you don't have enough money to put down on the house, which you need at least 20% to put down.  

You can have a second loan that can take care of the PMI, but sometimes there isn't much of a cost difference.

If you can't avoid private mortgage insurance, there is one thing you can do to get rid of the PMI earlier. One of the things you can do is monitor your home value. Maybe you did a small home improvement where you added a bathroom or bedroom. As of late, home prices have been increasing which means your home value could be worth more than when you purchased it. Interest rates are still at all time lows, so you could refinance your house. When you refinance, your house will be revalued at the new market rates which could put your mortgages to home value above the 20% mark.  

For example, lets say you bought a house for $350,000 in 2014 and your house was valued at $350,000. You put $30,000 down so you are still far away from getting rid of PMI because your mortgage is $320,000. However, a year or two later, the housing market has improved and your house is now worth more than $400,000. Interest rates haven't changed much so looking at refinancing to get rid of PMI may be worth looking at. When you go to refinance, they will assess your house at the new market value of $400,000, and your mortgage is still around $320,000 or less, which makes your equity now 20%.  You have now removed the PMI from your mortgages. Before you do this, make sure when you refinance, your payment is less than what you originally were paying and make sure to talk to a mortgage broker to make sure it is worth looking at.

Vincent Oldre, CFP®

July 2014
October 2016
October 2016