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Getting Rid of PMI on Investment Properties


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If you’ve ever purchased investment properties with anything less than 20% down on a fixed-rate mortgage, you are likely paying PMI or private mortgage insurance.  This can run anywhere between $50 and $300 a month depending on the purchase price of the property and how much money you put down on it.  Even though you are required to pay PMI every month, it is not there for your benefit.

PMI is issued to lending banks by third party firms such as MGIC, and the purpose is to offer some level of protection to the lender if you default on your loan.  Simply put, if you do default, PMI will pay the lender the difference between your down payment and what a 20% down payment would have been.  So if you put 10% down and then defaulted, the PMI issuer would pay the lender the dollar amount equivalent to the other 10%.

So basically, paying PMI is akin to flushing money down the drain each and every month.  Therefore your goal should be to eliminate this expense as soon as possible.  In general you can request PMI cancellation once you have attained 20% equity in the property (either based on the aggregate of the mortgage payments you’ve made, or if the value of the property has increased).  In terms of earning the 20% equity just based on your payments, with a 6% interest rate it will take roughly 9 years to achieve this if you put 10% down, and 6 years if you put 15% down.

Banks are required to automatically cancel PMI once you’ve attained 22% equity in the property unless you are considered high risk, you have a VA or FHA loan, you have made late payments in the past, or your investment property mortgage was issued prior to July 1999.  But again, you do not have to wait for this automatic cancellation at 22%; once you have 20% equity, you can contact your lender or the PMI issuer and request a cancellation.



One Response to Getting Rid of PMI on Investment Properties

  1. Autumn says:

    Need clarification regarding PMI on Investment Property…GMAC Mortgage tells me that the PMI on IP (conventional loan)will never be terminated because it is not an owner-occupied residence. Looking at FTC website I did not find anything specific about PMI on IP mortgage loans… you have stated the following: Banks are required to automatically cancel PMI once you’ve attained 22% equity in the property unless you are considered high risk, you have a VA or FHA loan, you have made late payments in the past, or your investment property mortgage was issued prior to July 1999. But again, you do not have to wait for this automatic cancellation at 22%; once you have 20% equity, you can contact your lender or the PMI issuer and request a cancellation., However other sites have mentioned PMI cancellation 35% equity on IP loans. Either way does the PMI terminate automatically without having to produce Appraisal or the like. would love to be enlightened. Thanks!

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