With rates so low, does it make sense to refinance to avoid having to pay for private mortgage insurance?
PMI—that is, private mortgage insurance—is an additional expense many homeowners have to take on. Buyers who put down less than 20 percent on a home are required to take out PMI, which protects lenders in the event that the borrower defaults on their loan. The cost of PMI varies based on the perceived risk of the loan.
Most co-op require buyers to put down a minimum down payment of 20 percent, but condo buyers may put down less and need to purchase PMI. When you have built up 20 percent or more in equity in your home, you have the option of refinancing and taking out a new mortgage without PMI.
"Interest rates are low, and if it looks like the owner will eliminate PMI with the lower rate and LTV [loan to value ratio], then that is worth looking into," says Brittney Baldwin, vice president of National Cooperative Bank (a Brick sponsor). "When looking at a refinance—look at the rate offered and any closing costs required from the lender."
But there are other possibilities for getting rid of this expense as well.
"If you still have PMI, you should only refinance your mortgage if there is a rate benefit," says Melissa Cohn, executive mortgage banker at William Raveis Mortgage. "It is possible to eliminate your private mortgage insurance without a refinance."
For instance, if the value of your home has gone up, and you have more than 20 percent equity, you can have your property appraised and your private mortgage insurance removed without refinancing, she explains.
"Also, if you have amortized your loan down to 78 percent, then the PMI companies are required to remove the PMI," Cohn says. "Of course, if you have more than 20 percent equity, and your rate is above-market, you can refinance to remove the PMI and get the added bonus of a lower rate."
Looking to buy a co-op apartment? National Cooperative Bank offers competitive rates and easy pre-qualification. With 40 years of lending to buyers in New York City, NCB is the bank for co-ops. After all, Cooperative is our middle name! Call us at (646) 201-4714 or email Brittney Baldwin at [email protected]. NMLS #507535. Equal Housing Lender.
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