When Does PMI Come Off My Mortgage?

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There are many factors to consider when taking out a mortgage to purchase a home. Private Mortgage Insurance, or PMI, is just another payment you may need to make to facilitate your loan approval. 

Since PMI raises the total costs a home buyer needs to pay to secure their mortgage, many people look forward to the day when PMI comes off their agreement. This article will explain some of the basics of PMI, how it works, and when you can expect your PMI payments to cease. 

Why Do Some Mortgages Require PMI?

PMI is a form of protection for the lender giving out the mortgage. Typically, PMI is in place to account for instances in which the borrower is unable to pay back the loan they receive. By adding a PMI payment, the lender receives more money during the early stages of the loan, even if the borrower is unable to keep up their end of the deal over the long term. 

Lenders typically use PMI in scenarios where the borrower might not otherwise qualify for the loan. For example, lenders often depend on PMI when borrowers are unable to present more than 20% of the down payment at the booking of their loan. 

Rather than rejecting the potentially unqualified borrower, the lender adds PMI to allow the loan to proceed. In these situations, without PMI, the borrower would likely receive no loan approval at all. 

Types of PMI

While PMI generally refers to additional payments a borrower must make to secure their loan, there are more details that you should understand. For example, there are multiple types of PMI, including the ones in the list below:

  • Monthly PMI: In this agreement, the borrower pays monthly PMI installments, often in addition to their standard monthly mortgage payment. 
  • Upfront PMI: Rather than paying monthly, the borrower will pay all of the PMI at the beginning of the loan in this agreement. 
  • Combined Monthly and Upfront PMI: This PMI agreement combines elements of the previous two. With this agreement, the borrower will pay a certain amount at the start of the loan and cover the remainder of the PMI with regular monthly payments. 

Although some types of PMI may be more alluring to you as a buyer, the type you end up using will depend on the agreement you make with your lender. In some instances, a lender will feel more secure with a certain type of PMI agreement. 

When Does PMI Come Off?

Many borrowers don’t enjoy making PMI payments in addition to their standard loan payments. As such, these borrowers typically wonder how long they will need to wait for PMI to come off their mortgage. The answer to that question can vary based on several factors. 

Earlier, we mentioned the fact that many borrowers who pay PMI are unable to put 20% down on their mortgage. That figure is also relevant when it comes to taking PMI off. In many cases, PMI will come off a loan when the borrower has built 20% equity or more in the home they are purchasing. 

Still, that time frame can vary. For instance, when you use upfront PMI, you’ll essentially be done making PMI payments as soon as you make the upfront payment. Additionally, your lender may establish unique guidelines regarding how long you’ll need to pay PMI based on the specifics of your borrowing situation. 

How Do Lenders Calculate PMI?

Knowing that PMI will eventually come off a mortgage is relieving. However, what’s even more important to understand is how much PMI will amount to. Again, this figure will vary depending on your situation. To calculate PMI, the following factors all come into play:

  • Total loan price
  • Total down payment
  • Credit score when opening or refinancing a mortgage
  • Mortgage type
  • Specific lender terms

As you can see, sharing a typical average price for PMI is not possible. Instead, total PMI payments depend on the influences in the list above and any guidelines that your lender sets. 

Is PMI Worth It?

Since PMI can cause you to pay ongoing monthly payments, some borrowers wonder if this type of insurance is worth it in the first place. The answer is that PMI is a valuable tool, not only to protect the lender, but also to provide borrowers with more borrowing opportunities. 

As a borrower, there are many reasons why you may not be qualified for the loan you seek. However, PMI can allow you to receive these loans even if you don’t fully meet all qualifications and requirements. As such, PMI opens the doors to more borrowing opportunities, even though it adds to your upfront costs, monthly payments, or both. Since PMI grants you the ability to receive more loans, it’s often the best option for borrowers who struggle to gain loan approval. 

From the lending perspective, it’s vital for the lender to be cautious when giving out loans. PMI gives the lender a greater level of comfort and assurance even if the person they lend to is not the ideal mortgage candidate. 

Overall, PMI is a benefit to both lender and borrower and can allow the mortgage approval process to unfold more quickly. PMI also gives borrowers greater opportunity to refinance their mortgages even if they have not built much equity in their property. 

Secure the Home of Your Dreams

PMI is a crucial factor when you’re searching for a mortgage. However, PMI is not the only matter you need to consider. Instead, there are many other critical decisions you must make to ensure your home-buying experience is a success. Often, having a trusted professional guide is the best way to make those decisions wisely. 
If you are in the Columbus area and you are interested in purchasing a home, you deserve to have a real estate expert on your side. Contact the Goldsmith Team today to learn more about how we can help you secure the home of your dreams.

At The Goldsmith Team, we buy and sell houses! If you still want an offer from us, or if you want to meet an agent that we recommend, click here now and fill out the form or call our team at 614-963-3340

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