3 Powerful Mortgage Premium Insurance (PMI) Strategies to Save Thousands

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3 Powerful Mortgage Premium Insurance (PMI) Strategies to Save Thousands

Introduction

Mortgage premium insurance (PMI) is an additional cost that homeowners with less than 20% equity in their homes must pay. PMI protects the lender in case the borrower defaults on the loan. PMI is often required by lenders on conventional loans.

The average cost of PMI is 0.5% to 1% of the loan amount per year. This means that a homeowner with a $200,000 loan could pay $1,000 to $2,000 in PMI each year.

There are several strategies that homeowners can use to avoid or reduce the cost of PMI. These strategies include:

mortgage premium insurance

1. Make a larger down payment.

The larger the down payment you make, the less you will have to borrow and the less you will pay in PMI. For example, if you make a 10% down payment on a $200,000 loan, you will have to pay $1,000 in PMI each year. If you make a 20% down payment, you will not have to pay any PMI.

2. Get a piggyback loan.

A piggyback loan is a second mortgage that you can use to make a larger down payment. Piggyback loans are often used by borrowers who do not have enough money for a 20% down payment.

3. Refinance your loan.

3 Powerful Mortgage Premium Insurance (PMI) Strategies to Save Thousands

If you have been paying PMI for several years, you may be able to refinance your loan to a lower interest rate and eliminate PMI. Refinancing can save you thousands of dollars in the long run.

How to Get Rid of PMI

Once you have 20% equity in your home, you can request that your lender remove PMI from your loan. You can do this by submitting a PMI cancellation request to your lender.

Your lender will review your request and determine if you are eligible to have PMI removed. If you are eligible, your lender will remove PMI from your loan and send you a notice of cancellation.

Benefits of Removing PMI

Removing PMI can save you thousands of dollars each year. It can also improve your credit score and make it easier to qualify for a lower interest rate on your mortgage.

Introduction

4 Useful Tables

PMI Cost by Loan Amount	PMI Cost by Credit Score
$200,000 loan: $1,000 to $2,000 per year	620 to 639: 0.58% to 0.79%
$300,000 loan: $1,500 to $3,000 per year	640 to 659: 0.48% to 0.69%
$400,000 loan: $2,000 to $4,000 per year	660 to 679: 0.38% to 0.59%
$500,000 loan: $2,500 to $5,000 per year	680 to 699: 0.28% to 0.49%
	700 to 719: 0.18% to 0.39%

PMI Cost by Loan Term	PMI Cost by State
15-year loan: 0.55% to 0.85%	California: 0.52%
30-year loan: 0.60% to 0.90%	Florida: 0.56%
	Texas: 0.58%

6 Effective Strategies for Saving on PMI

Make a larger down payment.
Get a piggyback loan.
Refinance your loan.
Shop around for mortgage lenders.
Improve your credit score.
Ask your lender for a PMI refund.

How to Avoid PMI

The best way to avoid PMI is to make a down payment of 20% or more. If you do not have enough money for a 20% down payment, you can look into getting a piggyback loan or refinancing your loan once you have more equity in your home.

Conclusion

PMI can be a significant expense for homeowners. However, there are several strategies that you can use to avoid or reduce the cost of PMI. By following these tips, you can save thousands of dollars on your mortgage.