If you have less than a 20% down payment on your mortgage, you will likely need to get mortgage insurance to cover the risk if you default on your loan. Mortgage insurance is usually an added cost, but it is one of the costs of buying a home that might be unavoidable for many people.

Fortunately, there are ways to avoid paying hefty premiums or monthly fees for mortgage insurance. The best way to eliminate the need for mortgage insurance is by saving more for a down payment. However, not everyone can do that right away or at all. If you cannot or don’t want to buy a home without mortgage insurance right now, take steps today to get rid of it in the near future. 

Adjust Your Mortgage Term

If you get a mortgage with a term shorter than the standard 15 years, you might not need mortgage insurance at all. The risk of default is higher for a shorter mortgage, so mortgage insurance is often not required. At the same time, a shorter mortgage means you’ll pay more interest, so you’ll need to save more for a down payment to avoid paying more in total. 

If you can’t afford a larger down payment, you might consider getting a mortgage with a shorter term. You can also get a “hybrid” mortgage that’s a combination of a shorter term and a lower interest rate. You can get many of these mortgage deals with a credit score as low as 680. These options may require a private mortgage insurance policy, but PMI (Primate Mortgage Insurance) premiums are much lower than with a traditional mortgage.

Adjust Your Interest Rate

If you need to get mortgage insurance, one way to get rid of it is to refinance your loan with a new lender. You can then get a new, lower interest rate that may cancel out the need for PMI. You will have to pay a closing cost and appraisal fee, which can be substantial.

A 15-year fixed mortgage means that your loan is scheduled to be paid off in 15 years. If you have a 30-year fixed mortgage, you’re essentially making a hybrid payment that’s a combination of a 15-year fixed mortgage and a 30-year fixed mortgage.

If you can get a new, lower rate, it’s worth the cost. PMI is calculated as a percentage of your loan amount. Therefore, a lower interest rate may cancel out the need for mortgage insurance entirely. If you have a fixed-rate mortgage, you may also be able to get rid of your PMI by refinancing to a lower fixed-rate loan.

Select a Lender That Doesn’t Have PMI

Some lenders don’t require mortgage insurance. However, you may need to get a higher interest rate to compensate for the added risk. If you can get a rate that’s comparable to standard mortgage rates, it may be worth accepting the higher interest rate.

The best lenders to consider are credit unions, online lenders, and large banks that don’t require PMI. You can also look for lenders specializing in non-PMI mortgages. These lenders can offer many of the same benefits as traditional lenders.

Withdraw an Equal Amount from your RRSP

If you have extra money saved in an RRSP (Registered Retirement Savings Plan), it may be a valuable trade-off to withdraw the same amount from your RRSP and use the funds to pay off your mortgage. You’ll avoid paying mortgage insurance, the RRSP withdrawal will not be taxed, and you can add the money back to your RRSP later. 

Withdrawing funds from your RRSP comes with a cost. You’ll have to pay income tax on the amount withdrawn. However, if you have enough funds saved in your RRSP to cover the tax, it may be worth it to you.

Consolidate Other Debts

If you have high-interest credit card debt, it may make more financial sense to pay off your mortgage rather than pay off credit cards. If you pay off a mortgage with a low-interest rate, you’ll save a lot of money over the long term.

 You can pay off your mortgage faster, which means you’ll be able to get rid of mortgage insurance sooner. You’ll also reduce the mortgage’s principal, which means you’ll pay less interest over time. 

If you can’t get a mortgage without mortgage insurance, it may make more financial sense to pay off a high-interest credit card. You should consider all of your options before making a decision about which debt to pay off first.

Shop Around for a Non-PMI Mortgage

If you have a decent credit score, you may be able to shop for a mortgage that doesn’t require mortgage insurance. Many lenders offer conventional mortgages for those who can get a down payment as low as 3%.

Even if you can’t get a conventional mortgage, you may be able to get a jumbo mortgage, which is a mortgage larger than the standard loan limit. You can also consider a home equity loan or line of credit as a last resort. 

Even if you can’t get a conventional mortgage without mortgage insurance, shopping around for a non-PMI mortgage may be worthwhile. You may be able to get a good interest rate and save on future mortgage insurance costs.

Final Words

Mortgage insurance is a necessary evil for many people who can’t make a 20% down payment on a home. However, there are many ways to get rid of mortgage insurance. 

You may be able to adjust your mortgage term, interest rate, and even the lender you get a loan from. You can also withdraw funds from your RRSP and consolidate other debts. 

If nothing else works, you can shop around for a non-PMI mortgage, which may come with a higher interest rate. All of these methods can help you avoid the added cost of mortgage insurance. In some cases, it can be even worth it to pay off your high-interest credit card debt before your mortgage. 


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