Get Rid Of PMI By Refinancing Your Loan

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Private mortgage insurance (PMI) is something that many people pay for their homes, and this expense is something that is required for certain loan programs when a person borrows more than 80% of a home's value. If you are paying PMI and cannot get your lender to remove it, you could always consider refinancing your loan, as this may be the best way to eliminate the PMI you are paying, but here are a few other things to understand about this.

Lenders are required to remove it at a certain point

PMI is something that borrowers pay as a way of protecting the lenders who issued the mortgage loans to them, but it is not something a person must pay for the entire length of a home loan. In fact, there are several rules that lenders must follow when it comes to removing the PMI requirement of a loan.

The first rule is that when a borrower pays off enough principle of the loan, the lender must remove the PMI. The rule for this is that a borrower must pay off enough money on the loan to drop the loan to value ratio to 78%. For example, if you borrowed $200,000 to buy a house for $225,000, your loan to value ratio would be at 88%. When your loan balance drops to $175,500, your lender should drop the PMI because this would reflect the 78% ratio needed to have the PMI stopped.

The other rule is that a lender must drop the PMI from a loan if the borrower has paid for half the payments. If you took a 30-year loan and have paid on it for 15 full years, the lender must legally drop the PMI.

Refinancing helps you eliminate the PMI faster

While you could wait for one of these things to occur to have your PMI removed from your loan, there are other options you could consider. The main one is refinancing. If you refinance your home loan, you will need an appraisal. If the appraisal shows that you owe less than 80% of the value of the home, the lender cannot place the requirement of PMI on your new loan. Additionally, when you refinance, you may reap a lot of other great benefits too, such as lower payments and a lower interest rate.

To learn more about refinancing your home loan, you can talk to a real estate agent or a loan officer. To learn more, contact a company like Liberty Escrow Inc.