We were just able to lower our mortgage payment without refinancing, woo hoo!
We bought our house in the midst of 2020 and we have been so grateful.
Buying a house was not initially in our plans, we were saving for a medium-sized wedding, but had to cancel due to the COVID-19 pandemic.
We worked hard to save what we could and we also got a ton of help from our family.
We had initially wanted to save for a home but after many talks between each other and other family members, we decided to pursue using the money for a wedding.
Then after canceling our wedding, we decided to pursue home buying and ended up having a small 25-person wedding.
I’d say it all worked out.
What we decided to do to lower our mortgage payment without refinancing
There are different ways to lower your mortgage payment and refinancing seems to be a common option, but we wanted to find a different method.
Our interest rate is 3% and with the rising interest rates, we knew that refinancing would not be a good option for us.
We came across a way where we could lower our mortgage payment by getting our primary mortgage insurance (PMI) removed.
We put about 3% down on our home and because we put less than 20% and have a conventional loan, the bank requires us to pay PMI.
PMI is insurance that protects the bank if we default on the loan.
So it protects them, not us.
Our monthly mortgage payment is $1,898.90 ($101 of this is a homeowners association (HOA) fee).
$83.60 dollars of this is our PMI.
A year of PMI is $1,003.20.
$83.60 dollars a month may not seem like a large monthly payment, but it’s something!
Requirements to get the PMI removed
Your PMI will drop off automatically over time after you have 22% equity in your home.
Our home equity is sitting around 9%, so it would automatically be canceled on 4-1-28.
That is 6 more years of PMI – no thanks.
You can get your PMI removed early if you think your home value has gone up significantly since you bought it.
Bret and I have been watching the houses that have been selling around our home and we thought we might have a chance!
So, I emailed someone at our bank to inquire about the process.
They emailed us back and said there were 3 ways we could have the PMI removed.
- We could let it drop off automatically on 4-1-2028 (we would pay approx $5,600 more with this option)
- Use the original value of our home: The loan must have a loan-to-value (LTV) ratio of 80% or less of the original value for it to be removed. Our loan to value is at about 91.83%, so it would take us a while to get to 80% LTV unless we made a large payment. (To calculate your LTV, you take your current loan price and divide it by the purchase price, then multiply by 100 to change it to a percent. (e.g. $293,861.87 / $320,000 x 100 = 91.83%)).
- Using current value: for our loan servicer, our loan had to be funded for at least 2 years to pursue this option. (It was funded for 2 years on June 3rd, yay!) We could have our home appraised and the LTV must be 75% or less. We had the option to order a Broker Price Opinion for $105 or move forward with an appraisal for $750.
We decided to move forward with option 3 because we had been watching the market in our neighborhood and felt our home value had likely gone up.
We also have done some significant updates (painted the entire interior, replaced all the appliances, got a new fence) which we knew would be a positive factor in our house appraising for well over what we needed.
Our house needed to appraise at $389,000 and we were fairly confident it would due to the homes that had recently sold in our area.
We decided to move forward with ordering the appraisal because the home prices have been rising and we trusted our research!
The process to remove the PMI
We were able to get our appraisal scheduled the next week after we requested to move forward with option 3.
We had to pay the $750 before they would schedule the appraiser.
And I recognize that paying $750 upfront may not be feasible for everyone… I am not sure if our mortgage company could have subsidized this rate, but it would be worth it to ask!
We were able to use our home equity line of credit (HELOC) to help us. Blog post coming about that soon!
The appraiser came while we were at home and she was nice and approachable.
She mainly took pictures and at the end gave us space to ask her questions.
In total, she probably spent about 20 minutes in our home.
One week later, we got an email our house appraised for $415,00 and that our PMI would be removed starting on 7/1/22.
*note: if you get your home appraised, it will not affect your property taxes.
Assessments done by your city or county affect your property taxes, appraisals do not. Read more about this here!
Paying $750 for the appraisal is about 9 months of PMI for us and then after that, we will be profiting $83.60 a month.
We plan to live in our home for a few more years, so it felt worth it to go forward with the removal at this time.
Especially with the market in our area being hot, we wanted to take advantage of it!
If you are wanting to get your PMI removed, I would recommend first starting with an email to the bank that services your mortgage loan to inquire about the process.
Especially if you have lived in our home for at least two years!
And with the current home prices rising, you likely have a good chance!
An email to your bank can’t hurt.
What I outlined above is specific to our mortgage loan servicer and there could be slightly different requirements from yours.
Good luck to you and if you have tried this before, let me know how it went for you in the comments!