A lender charges mortgage insurance, also called private mortgage insurance (PMI), for a loan when the borrower didn't pay a sufficient down payment to buy the house. In many cases, a lender wants a 20 percent down payment in order to close a loan, but it may show leniency on that figure as long as the borrower pays these insurance premiums. Take steps to get the lender to cancel the policy if you want to save some money on your mortgage payments. However, keep in mind that the lender makes the final decision on whether to cancel your PMI policy.
Estimate your current home value. You can do so by viewing recent home sales for similar properties in your zip code on a real estate website, ordering an online valuation from a real estate website or by scheduling an appraisal.
Review the estimated market value of the home and compare it to your current mortgage balance. Determine if your loan-to-value (LTV) ratio is at or below 80 percent—this is the LTV many lenders look for before canceling PMI. To do the calculation, simply divide the loan balance by the market value. For instance, if the loan balance is $100,000 and the market value is $125,000 the LTV is 80%.
Write a letter to your lender to request that the company stops charging you the PMI payments based on your findings if you're at an 80 percent LTV or lower. List your account balance as of the date of your request letter. Include your account number, full name, address and a copy of any proof you have of your home's value with your request. The lender commonly gets back to you with a decision via mail.
- According to the federal Homeowners' Protection Act, the lender must cancel the PMI immediately when you've paid down your loan balance to 78 percent of the original balance.