If you paid less than 20 percent down when you purchased your home, you've probably got another bill to pay along with your mortgage. This one's called Primary or Private Mortgage Insurance (or PMI).
Primary or Private Mortgage Insurance is something that banks require of individuals who have less than the traditional 20 percent to offer as down payment to purchase a house. It protects the banking institution from loss if you miss a mortgage payment. It is typically added on to your monthly mortgage payment.
Save some money on your PMI
Although PMI is an additional expense throughout the year, there is good news. You can take tax deductions when you file your income taxes each year if you meet certain income requirements.
The Protecting Americans from Tax Hikes Act of 2015, allows homeowners to deduct PMI premiums for the 2016 tax year, if you have an adjusted gross income of $100,000 to $108,999, the deduction is smaller. For example, if individuals have an adjusted gross income of $109,000, these premiums are not deductible.
If you've made your mortgage payments on time and your loan-to-value ratio has reached 78 percent, you may want to talk to your lender to find out if you can drop the PMI from your mortgage altogether.
Investopedia notes that there's another way to avoid the PMI payment, even if you cannot pay the full 20 percent down. That involves taking out a smaller loan to cover the 20 percent down. A homeowner will have two loans, but there won't be a PMI payment in addition to the mortgages.
Bankrate suggests refinancing if your home's value has increased, or getting a new appraisal. Adding a room or something special in the backyard can increase your home's value; if you've done this, it won't hurt to ask your lender to recalculate your loan-to-value ratio.
