If you are carrying mortgage insurance on your home loan, you may be wondering how long you will need to maintain this policy. Although you have some say in the matter, typically your lender determines how long you will be required to carry this coverage.
Private mortgage insurance (PMI) is designed to protect lenders in case borrowers default on their loan. Borrowers who put less than 20% down on the loan are generally required to carry this coverage.
If you are carrying PMI, there are some precautions you can take to avoid paying premiums beyond the necessary time. The must obvious thing is to ask your lender what will be required before you can drop the coverage. Some lenders require the insurance for a specific amount of time, such as five years. Others, however, require that you reach a certain amount of equity.
Make sure you know the value of your home. Appreciation alone can account for some increase in equity. You also should keep track of your payment schedule and your mortgage balance. Even if you discount the appreciation of your home, equity is likely being built with each payment.
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