How to Avoid Paying Mortgage Insurance
- 1). Pay at least 20 percent down when you purchase your home.
- 2). Borrow down payment money with a second-mortgage loan to make up the difference between the cash you have on hand to put down and the amount that constitutes 20 percent.
- 3). Pay down your mortgage principal balance to less than 80 percent of the purchase price. Ask your bank to cancel your PMI if it doesn't do so automatically.
- 4). Order an appraisal of your home if you believe the value has increased enough that you now have at least 80 percent equity. Compare the price of the appraisal to the amount you'd save if your PMI were canceled in order to be certain the appraisal is worth pursuing.
- 5). Remind your bank to cancel your PMI once you've reached the Homeowners Protection Act (HPA) milestones that trigger automatic termination of the policy: the principal balance dropping to 78 percent of purchase price--77 percent if yours is a high-risk loan--or hitting the halfway point in your amortization schedule. For a 30-year loan with 360 payments due in total, the halfway point would be the 180th payment.
