If you’re a homeowner and didn’t have 20% down to purchase your home, you’re likely familiar with private mortgage insurance (PMI). There are different options to getting rid of it. Homeowners generally know they can get rid of PMI on a mortgage by refinancing. However, this is a much less complicated option potentially available to you. If you want to skip the story and head straight to how to get it done, click HERE.

What is PMI Insurance on a Mortgage?

PMI insures the bank against you so that if you can’t make your payments (aka defaulting on your loan) and the bank has to foreclose on you, the bank can recoup some of that back from the insurance company. However, you can get rid of PMI on your mortgage.

For background, mortgage payments are made up of principal (the amount that goes toward the initial loan amount itself), interest (the extra you pay the bank for borrowing money from them), and escrow (the amount they hold to pay your property taxes, insurance, etc). If you have PMI, add that to the calculations.

Mortgage = principal + interest + escrow + ?PMI

Why Were We Charged PMI?

We purchased our home for $213,500. 20% of that would be $42,700. Welp, we ain’t have that. The amount of the mortgage or loan was $202,500 because we put $11,000 down. This amounts to a little over 5%. This means we had to pay PMI which was about an extra $104/month added to our mortgage payments. It may not sound like a lot but that’s over $1,200/year. Decreasing expenses is the simplest way to get more cash in your pocket.

READ MORE: How To Take Steps Toward Financial Freedom

When Can You Eliminate PMI Insurance?

A lot of people know they can get rid of PMI by refinancing. Otherwise, you typically can’t drop PMI until you pay the 20% in the principal part of your payments.

Let’s do the math on how long that might take. We’ll use my mortgage payments right before I refinanced this year as an example. My payments were $1705.55/month. Only $412.69 of that payment goes toward the principal. That feels criminal, tbh.

Since we put $11,000 down, that means we have $31,700 to go before reaching 20%. Divide $31,700 by $412.69 and you get 76 months aka 6 years 4 months. If I continued to pay PMI, in total, I would have paid $7,904 for a service that has zero benefits to me.

Can I remove PMI from my mortgage without refinancing?

Instead! My darling husband kept his eyes on the comparable sales in our area and especially in our building. I honestly don’t know how he knew to do that. As the value of the homes continued to increase (aka appreciation), the loan-to-value ratio shifted. In other words, the value of my home increasing made getting rid of PMI a possibility.

Once the amount of the loan divided by the value of the home became greater than 80%, my husband called our lender and informed them. Just like that, poof! The PMI disappeared. We did this about 2 years in, rather than the 6 years 4 months it would have taken. Money saved!!!! And that’s how you get rid of PMI without refinancing.

To-Do List for Removing PMI

• If you’re looking to buy a home with less than 20% down, talk to your lender to find out the requirements regarding if and when PMI can come off. Some lenders might charge PMI for the life of the loan. That’s bad news bears and will require refinancing to get rid of it.
• If you’re paying PMI currently, then look to see how comparable homes in your area selling for. Divide how much you owe on the principal part of your mortgage by how much your home would be valued for today (amount owed/home value). If the number you get is .80 or less, then check with your lender about their requirements for taking PMI off.

Enjoy the savings!!! Next step: Build Your Emergency Fund.

READ MORE: The Best Way to Successfully Build An Emergency Fund

Originally published in September 2020, this post has been updated by Prisca Benson.