Many borrowers who use FHA loans were persuaded by the low down payment option. Given that PMI is usually charged on mortgages for greater than 80% of the purchase price, most FHA buyers have PMI charges each month. The process for having that fee cancelled depends on when the loan was issued by FHA. Below is an overview of cancelling PMI from FHA home loans issued prior to June 3, 2013.
Cancelling PMI By Paying Down the Mortgage
With each mortgage payment sent in, you pay down a piece of your loan balance. In the early several years, the portion credited to interest is higher than the amount for the loan balance, but this slowly shifts. PMI is automatically terminated when the loan reaches 78% of the original purchase price. You may also submit extra contributions towards principal to get to this mark sooner.
With many loans, you can insist that PMI be cancelled when the balance drops to 80%. It is definitely a great idea to track this to eliminate PMI fees for several extra months. Refer to your loan paperwork to verify that this is indeed an option.
Change in Market Prices
LTV ratios are based on your principal balance and the initial price of the property or its current price. If values improve quickly, your current loan balance might be less than 80%, cancelling PMI as a result. You must request an appraisal through your Lender to explore this option. You are billed the cost, but it pays for itself if your PMI disappears as a result. Also, you must keep your mortgage for 5 or more years before cancelling PMI.
Guidance on Cancelling PMI From FHA Home Loans
Mortgage terms typically change over the years. This information is purely a review of common FHA loan terms. You must check your particular documents regarding cancelling PMI from FHA home loans. You can also reach out to a lending consultant for further information.