Does it make sense to refinance at higher interest rate to get rid of PMI?

Does it make sense to refinance at higher interest rate to get rid of PMI?
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We purchased our home 4 years ago this month. Original loan amount was $237,000. We currently owe $219,000. Interest rate is 3.75%, 30 year fixed. House is worth about $295,000 now. We pay $245.00 monthly for PMI. Does it make sense to refinance at 4.75% to get rid of PMI and get a 20 year mortgage? We don’t want any cash out and do not plan to sell.


Hi and welcome! If you’ll only be paying PMI for a little while longer, it might not make much sense to refinance now to get rid of it.

You didn’t mention the original appraised value of the home, but once your loan amount drops below 80% of that original value, you can ask the lender to drop PMI. When the loan-to-value falls below 78%, the lender is supposed to eliminate PMI for you. If your home has grown in value, you could get a new appraisal and present that to the lender while asking that PMI be dropped. Or, you can make extra principal payments to pay your loan down faster. (Refinancing might cost a couple thousand bucks, so you might be better off applying that to the loan.) Once the PMI is gone, you can apply the extra $245 dollars a month to your loan principal and pay off your loan within 20 years.

All this assumes that we’re actually talking about private mortgage insurance, and not the type of mortgage insurance that comes with FHA loans. If what you got is an FHA loan, you could be stuck with mortgage insurance for the life of the loan if your down payment was less than 10 percent. Then refinancing might make sense. It looks like the payments would be only slightly more than what you’re paying now.

Please let us know if you have follow up questions…and what you decide to do!