If you're currently paying Private Mortgage Insurance (PMI) and have been for several years, it may be time to petition your lender to have the PMI payment removed.
Waiting for it to drop off "automatically" may mean you will be stuck with the higher payments for at least five to ten years from your original purchase date.
PMI protects lenders from homeowners that stop making payments on homes with small amounts of equity. It's an insurance policy that is "cashed in" if the homeowners defaults.
However, federal law allows homeowners to request the cancellation of PMI if their loan-to-value (LTV) drops below 75 or 80% based on the new or the original appraised value, depending upon your exact circumstances.
Usually, you need to have been paying on the loan for at least two years, except in cases where you have made major improvements to your home.
An example of 80% LTV is a home that is worth $100,000 on which $80,000 is owed to mortgage lenders.
If you are paying PMI and think you are eligible to have it removed, contact your mortgage lender and ask them about their procedure to remove PMI.
The lender may require that you have your home appraised (at your expense) and that may cost anywhere from $200 to $400 -- but if your petition is successful, the cost of an appraisal is much less expensive than the ongoing monthly cost of PMI.
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I recommend this to clients all the time. Sometimes, the lender will accept a market analysis from a Realtor as long as it is detailed and not just 3 high comps. It should show a good representation of the area with several comps, sold and active.
It is so much cheaper than refinancing like a lot of people do. With closing costs it may actually cost you more each month to refinance than to have PMI dropped by just getting an appraisal.
I wish I knew about "this" with my first home! I owned more than 50% of my home and went on paying for YEARS and YEARS! I was young and naive when I bought my first home...with NO GOOD MORTGAGE BROKERS to explain the facts like you could've done!! GREAT POINTS MADE HERE!!
Donna, Todd, and Susie: Thanks for your comments. They help to get the word out! And here's some additional info for FHA mortgages:
For mortgages with terms greater than 15 years, the annual MIP will be cancelled when the LTV reaches 78%, provided the borrower has paid the annual MIP for at least five years.
For mortgages with terms 15 years or less, the annual MIP will be cancelled when the LTV reaches 78%.
For Streamline Refinances without an appraisal, FHA will determine when the 78% threshold is reached, based upon the LTV calculated from the data residing in SFIS.
An annual MIP will be collected the entire duration of the loan for Condos and 203k loans closed prior to January 1, 2006, regardless of term or LTV.