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When Can You Stop Paying Private Mortgage Insurance?

If you make a down payment of less than 20% when buying a home, the lender will generally require you to buy private mortgage insurance (PMI). You can generally drop the PMI when you have attained a 20% equity in the home or when the value of your home goes up (due to a good real estate market such as we're currently enjoying) so that your equity constitutes 20%. Note, to cancel PMI most lenders will require that your house be appraised.  Given this cost it might not be a bad time to consider refinancing at the same time.

Some lenders require you to keep the PMI forever and others make you keep it at least five years.

TIP: To find out whether you can cancel the coverage, send a letter to your mortgage servicing company (the company to which you send your mortgage payments). This will get the process started. You may be required to pay for an appraisal, and you will need to have a good payment record.

If you are able to cancel the insurance, you will receive any prepaid premiums that are in your escrow account.

Securities offered through Sigma Financial Corporation. A registered broker/dealer. Member FINRA & SIPC.

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Last modified: 11/04/07