Lenders require Private Mortgage Insurance (PMI) when a borrower puts down less than 20% on a home loan. If your principal balance is relatively low, you are thinking about refinancing your mortgage, and plan to take cash out, think about whether the new loan will require PMI. (On a $200,000 mortgage, PMI will cost approximately $140 a month.) If that is the case, consider a home equity loan instead. Second mortgages do not impact PMI calculations; as long as the balance of your first mortgage is less than 80% of the appraised value of your home, you won’t have to pay PMI.
Even if you don’t plan to refinance, keep in mind you can petition your lender to cancel PMI when your mortgage balance is less than 80% of the appraisal value; if that is the case, contact your lender today.