Getting Rid of PMI on Apopka Florida Home Mortgages
PMI, also known as private mortgage insurance, is often charged on loans where the down payment is less than 20% of the purchase price. It is charged as a percentage of the loan amount, so it can cost a home buyer several hundred dollars per month. In most cases, it is not tax deductible, so it offers no added value. Getting rid of PMI on Apopka Florida home mortgages is often in a homeowner's best interest. Here are two ways to do so.
Refinance the Loan
If you have paid down your loan over the years or market values have increased enough where the loan balance is 80% or less of the home's current value, then getting rid of PMI can be done by refinancing. Refinancing a mortgage means obtaining an entirely new loan on the home and using the funds to pay off the old loan.
For example, let's assume you originally purchased a home for $400,000 and obtained a mortgage for $360,000. That's 90% of the purchase price. It's been two years and you've paid down the loan balance to $347,000. Given the improved market conditions, your home is currently worth $440,000. Your current loan balance is therefore 78% of the market value. If you were to obtain a new loan, the amount borrowed would be below 80%, therefore getting rid of PMI charges.
Although PMI might be eliminated in a refinance, you should also consider the difference in interest rates. If your current loan has a lower rate than today's market rates, then your savings would not be as significant in a refinance. Additionally, there's a cost to refinancing. Most lenders charge closing costs and other fees. It's important to evaluate all of these figures to determine whether refinaning makes sense.
Request a New Appraisal
Some mortgage programs provide a way for getting rid of PMI without refinancing. You would simply need to demonstrate that home values have increased enough. This is done by ordering a new appraisal through your lender at a cost of $300-$600. Your lender will then compare your loan balance to the new market value to determine whether you meet the requirement to eliminate PMI.
Although the PMI threshold for a new mortgage is 80%, it might be less when requesting PMI removal from an existing loan. For instance, some lenders require that the balance be 75% or less. Some even have different thresholds depending on how long you've had the loan. Contact your lender for additional information on this option.
Summary of Getting Rid of PMI on Apopka Florida Home Mortgages
As detailed above, there are two primary ways to get rid of PMI. You can either refinance your mortgage or request a new appraisal. The best way to check on the options available to you is to first check your loan documents or contact your lender. If your current mortgage doesn't have an option to get rid of PMI, then refinancing may be the only alternative. Given the cost of refinancing and the potential change in interest rates, it's important to analyze the costs versus benefits. In many cases, you may not realize savings immediately but it could still be worthwhile to refinance for long-term savings. Contact us if you'd like a referral for a reputable local lender to assist with this analysis.