How Does Refinancing Help to Remove Private Mortgage Insurance (PMI)

 PMI or the Private Mortgage Insurance is the extra cost that a homeowner with initial loans often incurs in case of a down payment of less than 20% of the home value. PMI protects the lenders, but it does not offer any direct benefit to the homeowners, making it a common target for elimination. Refinancing can be a powerful tool for removing PMI and enhancing your economic condition. This blog will discuss how it works and how you can improve the benefits, including cash-out refinancing, using home equity, and investing in home improvements.

What is Refinancing?

Refinancing includes replacing your current mortgage with a new one, particularly with better terms. Homeowners refinance for different reasons, for example, securing a lower interest rate, eliminating PMI or cutting down the loan term. By doing so, you can effectively save thousands over the period of your loan.

How Does Refinancing Remove PMI?

PMI is generally needed until your loan-to-value ratio (LTV) decreases below 80%. During refinancing, a new appraisal determines the current market value of your home. If the home value rises or your diligent mortgage payments have reduced the LTV to 80% or less, you can refinance within a new loan without the PMI.

For instance, if your current home value is $300,000 and your remaining loan balance is $240,000, your LTV is 80%, meeting the threshold to remove PMI.

This blog is originally published here: https://chooseyourhomeloan.com/refinancing-help-to-remove-private-mortgage-insurance-pmi/

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