How to get rid of PMI – Part One
December 2nd, 2008 categories: Buying Real Estate, Foreclosures, Home Improvement & Design, Real Estate News, Selling Real Estate
No I didn’t say PMS. If I knew that, then I’d be a millionaire. PMI – your Private Mortgage Insurance protects your lender in case if a borrower defaults on the loan, and the value of the home is lower than the loan balance.
Home Equity and PMI
PMI has been a large money-maker for the mortgage lenders. The amount of the insurance (usually $40/month for a $100k home) is commonly rolled into the mortgage payment. Given the size of the overall note payment, this additional fee is often overlooked. Homeowners continue to pay the PMI even after their loan balance has dropped below the original 80% threshold. This occurs naturally, of course, as the home owner pays down the principal on the loan. On a typical 30-year loan, however, it can take many years to reach that point.
Lenders were under no obligation to tell home owners when they had reached a point where the PMI can be dropped. That all changed back in 1999 when the Homeowners Protection Act took effect. In most cases, this law now obligates lenders to terminate the PMI when the principal balance of the loan reaches 78% of the original loan amount. Savvy homeowners can get off the hook a little sooner. Upon request of the owner, the PMI must be dropped when the principal balance amount reaches 80%.
Here are the disclaimers: this only works for homes purchased after 1999 and wwners must be current on their loan payments. For buyers prior to 1999, they must initiate the process to have it removed. Lenders are under no obligation to remove it, but most will.
There is another way that your home equity can reach beyond the 80/20% ration. Raise your hand if you know the answer…actually leave your ideas below in our comments section.
Here’s tricking you,
With congress thinking about reducing home mortgage rates to 4.5% NOW is the time to buy and/or refinance! Not sure how they are going to reduce interest rates that much in a free market economy but I’m refinancing too!!!!
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