Mortgage Killer Accelerator

Strategy 21 of 107

Drop mortgage insurance and send that amount to principal

Most predictableFrom a lower cost of the same debt

What it is

Check your balance against the home's original value. At 80% you can ask in writing for private mortgage insurance to be cancelled; at 78% it must end automatically if you are current.

Steps

  1. Check your balance against the home's original value. At 80% you can ask in writing for private mortgage insurance to be cancelled; at 78% it must end automatically if you are current.
  2. If the home has risen in value, ask the servicer whether a new appraisal can be used to reach 80% sooner.
  3. Keep paying the same total. The amount that was going to mortgage insurance now goes to principal.

Repeat: Once, when the balance reaches 80%. Check every year from then on if values rise.

Measure: Monthly mortgage insurance removed (enter it as the monthly amount).

Try it in the calculator Enter its amount in "Monthly non-income amount to principal". Add a payoff goal of 5 years to see what is still needed.

Risks

  • FHA loans have their own mortgage insurance rules; many keep it for the life of the loan unless refinanced.
  • A servicer can require a clean payment history and proof the value has not fallen.

Who it fits

Average household, Newlyweds, Married couples, Single, No high school diploma, No college degree, College students

Needs

Paying private mortgage insurance

How predictable

Most predictable: once in place, the payoff date is arithmetic

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (average household). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: check your balance against the home's original value. At 80% you can ask in writing for private mortgage insurance to be cancelled; at 78% it must end automatically if you are current.

Suppose it brings $600 a month on principal from this strategy, not from the paycheck. The loan would be paid off in 16 years 3 months instead of 30 years, saving about $196,219 in interest. To finish in five years, they would still need about $3,374 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sequences that use it

  • Cost-cutter stack (no new debt): Every dollar comes from a bill that got smaller. The total you pay each month stays the same, and the difference lands on principal.
  • First-time buyer stack: Set it up at purchase: the credit certificate and a bought-down rate must happen at closing; then yearly gifts and dropping mortgage insurance at 80%.
  • Servicer check-up: Make sure the servicer credits every extra dollar, drop mortgage insurance on time, fix the escrow, then put idle savings to work.

Sources and more information

Where to get help

Related strategies

Back to top