When you take out a conventional mortgage loan (not insured by the U.S. government), with a down payment of less than 20%, your lender will require that you pay monthly private mortgage insurance (PMI) which protects the lender in case you default.
PMI costs can vary between 0.58% and 1.86% of the mortgage amount. According to Nerdwallet’s PMI calculator, if you buy a home for $350,000, put down $35,000 or 10% with a 6% interest rate on a 30-year note, and with a credit score of 620 to 639, you’ll pay 1.50% PMI, or $394 per month. It’ll take 7.40 years for your loan balance to get to 80% loan to value (LTV). The earliest you can get a PMI cancellation is two years of ownership and an LTV of 75%.
You can ask your lender to remove PMI when your loan balance reaches 80% LTV. At 78%, PMI should be canceled automatically, but there are steps you can take to get it canceled more quickly.
- Make extra payments to reduce the principal.
- Make payments on time—no late payments in the previous 12 months, no 60-day late payments in the previous 24 months.
- Don’t have any other liens on the property, including a second mortgage.
- Show proof of value with a professional appraisal or broker price opinion.
- Make improvements to the home that add value.
- Refinance the mortgage and get a home equity line of credit to pay off the PMI.
