Homeowners in Michigan often seek ways to manage their mortgage costs effectively. One excellent opportunity lies in leveraging your home's equity to cancel private mortgage insurance (PMI). PMI is typically required when a borrower puts down less than 20% of the home’s purchase price. As home values increase, utilizing that equity can significantly reduce your monthly payments. Here’s how to use your home's equity to cancel mortgage insurance in Michigan.
Understand Your Home Equity
Home equity is the difference between your home’s current market value and the remaining balance on your mortgage. In Michigan, property values have shown a steady increase. To calculate your home equity, take the current appraised value of your home and subtract the outstanding mortgage balance. For example, if your home is valued at $300,000 and you owe $200,000, your equity is $100,000.
Check Current Market Value
Before proceeding, you'll need to determine your home’s current market value. Consider hiring a professional appraiser for an accurate assessment. Alternatively, you can use online real estate platforms for a ballpark estimate. If your home’s value has risen significantly since you purchased it, you may be closer to canceling PMI than you realize.
Calculate Your Loan-to-Value Ratio (LTV)
To cancel PMI, lenders typically require your loan-to-value ratio (LTV) to be 80% or lower. The LTV is calculated by dividing the current mortgage balance by the home's appraised value. Using our previous example, with a home value of $300,000 and a mortgage balance of $200,000:
LTV = $200,000 / $300,000 = 0.67 (or 67%)
In this case, your LTV is 67%, which qualifies you to request PMI cancellation.
Contact Your Lender
Once you confirm that your LTV is 80% or lower, reach out to your mortgage lender to express your intent to cancel PMI. They will guide you through their specific process. Most lenders may require documentation such as a recent appraisal or a form to officially request the cancellation.
Consider a Refinance
If your equity situation warrants it, refinancing your mortgage can also be a viable option. Through refinancing, you may secure a lower interest rate and simultaneously eliminate PMI. Before refinancing, ensure the costs (including closing costs) align with your financial goals.
Keep Documentation Handy
When canceling PMI, it’s essential to keep all documentation, including the original loan agreement, any correspondence with the lender, and the appraisal report. This paperwork will be vital in ensuring a smooth cancellation process.
Monitor Future Equity Growth
After successfully canceling PMI, keep monitoring your home equity. Home values can fluctuate, and maintaining awareness will allow you to take advantage of any future increases or assess whether refinancing makes sense again down the line.
Conclusion
Using your home’s equity to cancel mortgage insurance in Michigan is a smart financial move that can save you money each month. By understanding your home's value, calculating your LTV, and working closely with your lender, you can effectively eliminate PMI and enjoy the benefits of your increased equity.
