Buying a home is one of the most significant financial decisions most of us will ever make. Owning a home gives us a sense of security and pride, but it also comes with a lot of financial responsibilities. One of those responsibilities is paying for Private Mortgage Insurance (PMI). But what is PMI, and why might you not need to pay it anymore? Let's explore.
What is PMI?
PMI is a type of insurance that lenders require you to buy if you put down less than 20% of the purchase price of your home. The purpose of PMI is to protect the lender in case you default on your mortgage payments. PMI typically costs between 0.3% and 1.5% of the original loan amount per year, which can add up to a significant amount over time.
Why might you not need to pay PMI anymore?
The good news is that there are a few ways you can avoid paying PMI. One way is to save up enough money to put down 20% or more of the purchase price of your home. Another way is to refinance your mortgage if you have built up enough equity in your home.
Refinancing your mortgage is essentially replacing your current mortgage with a new one. You might consider refinancing if interest rates have dropped, your credit score has improved, or if you want to switch from an adjustable-rate mortgage to a fixed-rate mortgage.
When you refinance, you have the option to take out a new loan that covers the remaining balance on your current mortgage. This new loan can also include any additional debt you want to consolidate. When you refinance, your lender will likely require an appraisal of your home to determine its current value. If your home has increased in value since you bought it, you might have enough equity to avoid paying PMI.
Refinancing can be a great way to save money in the long run. By refinancing to a lower interest rate, you can reduce your monthly mortgage payment, which can free up money for other expenses or savings. Plus, if you no longer need to pay PMI, you could save hundreds or even thousands of dollars a year.
Additionally, some lenders may allow you to waive your PMI without even going through a complete refinance (lender dependant), so if rates have gone up significantly since you bought, there still might be an option for you.
If you don’t know what your home might be worth in today’s real estate market, send our team a message and we’ll be happy to provide you with a free valuation estimate of your home!