Many people spend thousands of dollars on private mortgage insurance over the life of their mortgage loans. It is however possible to avoid the payment of this particular insurance if you can eliminate the reason why you had to take it. By very simple procedures, you can obtain from your lender conformity to eliminate PMI payment from your mortgage monthly installments.
Private Mortgage Insurance
If your borrowed amount to pay for your home exceeded 80% of its appraised value, private mortgage insurance (PMI) payments are likely. PMI payments are neither trivial nor tax-deductible. Depending on your down payment PMI can effectively raise interest rate by 0.32% to 0.93%.
To get rid of PMI, prove to your lender that your mortgage balance is below 80% of your home value. Do everything it takes whether with extra payments to reduce loan balance or a new appraisal in case of rising housing value in your neighborhood. Discuss with your lender ways to eliminate PMI.
Refinancing Can Save You Money Too
Generally if a percentage point can be cut off the interest rate on mortgage, refinancing is advised. But you also need to consider closing costs and points. Find the easiest ways to achieve that. Even reducing mortgage payment by $100 a month saves you thousands over the years.
Once you succeed in lowering loan-to-value to eliminate PMI, it pays to continue additional payments to principal. It's a major financial advantage to own a home outright but there's no hurry either. You will mostly emerge ahead by following a 30-year payment schedule and investing extra money in market matching index funds. With an online loan calculator, work out the amount you can save by paying off your loan early and compare savings with earnings from investing in an index fund at 11%.
Equity Is A Cheap Source of Funds
The equity in your home could be a good source of low-interest funds for major purchases. Refinancing should be first choice, followed by a home equity loan or home equity line of credit, which is more flexible but with highest interest rates, in order to generate cash for financing home improvement or other major expenses that would incur debt. If you have a lot of high-interest debt, use equity to reduce interest rates. The interest is tax-deductible too. But don't overdo it. Even though they are good debt, mortgages are debt, so don't abuse your equity. Always remember that the collateral for the loans is your home.
No matter how much time it takes, it always pays to get the most out of all your mortgage money. Though mortgage loans are probably the cheapest loans on the market, since the amount of money owed tends to reach the highest amounts, the smallest cut on your interest rate will imply huge savings over the whole life of the loan. A half point interest reduction over a 30 year loan can result in thousands of dollars saved in interests.
So, If you can eliminate PMI, refinance for a lower interest rate or destine a higher portion of your income towards debt repayment, do. This will save you significant amounts of money over the whole life of the loan. And you can invest that money and generate additional income to make your financial life more alleviated.
