What is personal mortgage insurance and how to eliminate it?

While taking out a mortgage loan for your house, you must have heard of the term personal mortgage insurance. You must be wondering what is personal mortgage insurance. Well, personal mortgage insurance, often known as PMI is an insurance which lenders require borrowers to pay when they take out a mortgage loan and when they do not have enough equity in their home. Most borrowers find it difficult to pay their monthly payments with the PMI. Read on to know how you can eliminate PMI.

Ways to eliminate PMI when you’re already paying it:

If the market value of your home increases: If the market value of your home increases to an extent where you can achieve 20% equity, you can eliminate PMI thereof.

Compare LTV ratio: Loan-to value ratio is obtained by dividing the loan amount by the value of your home. Most lenders demand an 80% LTV before they cancel your PMI.

Avoid paying monthly premium: You can avoid your monthly mortgage insurance premiums by making a single payment during the time of closing. It can be paid as an upfront fee or can be financed into the loan.

Ways to eliminate PMI while taking a mortgage:

Decide to pay a higher interest rate: If you decide to pay a higher interest rate, then often lenders tend to eliminate the PMI from your monthly payment. This rate may increase from .75% to 1% depending on the down payment.

Buy a home that you can afford: Your affordability is an important factor to consider before taking out a mortgage loan. If you have saved a lot for down payment, then you can avoid paying PMI while you take a mortgage. Save enough money to put down 20% of your loan amount. This will help you eliminate insurance premiums.

So, the next time you take out a mortgage loan you must not be asking yourself about what is personal mortgage insurance. After going through this article you must have known what it is and how you can avoid paying them. Consider the ways mentioned above and eliminate your PMI in order to make your monthly payments affordable.

Author Bio: Miley jones is one of the financial writers associated with the first-time-homebuyers-loans.com. With her vast experience and in-depth knowledge, she has been able to leave a mark in writing and advising on all Home-buying issues. Her remarkable support and guidance has improved the website into a global hub for the first time home buyers.