Making PMI payments?

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Divide your first mortgage balance by .8 (that’s “point 8”), is the result what you think your house is worth?  If so call us now and we can help you eliminate your private mortgage insurance [PMI] payment from your conventional mortgage.

Greg Daugherty of Money Magazine says, “Say bye-bye to PMI. You shouldn’t have to pay for private mortgage insurance once the equity in your home equals 20%. And that’s true whether you’ve reached the exalted 20% threshold simply through your monthly payments, or with a little help from local housing appreciation. Don’t rely on your lender to automatically drop your PMI, though. If the bank balks, you may need to hire an appraiser to prove your home’s worth.”

What is private mortgage insurance? PMI insures your lender against loss in the event you default on your mortgage loan. You pay the premium; the lender gets the benefit. This isn’t necessarily all bad. You probably were able to buy a more expensive home because of this insurance.

Typically conventional lenders require a 20% down payment on a home. This means a $10,000 down payment would buy a $50,000 home. If however the lender only required a 5% down payment the same $10,000 down payment would buy a $200,000 home. This often is possible when private mortgage insurance is used.

If you purchased your home using a conventional mortgage (not FHA or VA), and made a down payment that was less than 20% of the purchase price, it is likely you are paying private mortgage insurance premiums right now. You should be able to determine this by looking at your escrow account, or calling your mortgage company, the premium is usually included in your monthly payment. The amount of the annual premium varies, most premiums are.5% to 1% of the first mortgage. For a moment lets assume you borrowed $150,000 to buy your home and your annual premium was .7% of the first mortgage, your PMI premium would be about $87.50 per month. That’s right, $87.50 per month, or thousands of dollars over the life of your home. I have even seen some borrowers paying as much as $250 per month. You may be paying premiums right now that you could be avoiding.  The sooner you do something about this the more money you’ll save.

How can you eliminate the premium for PMI? That will depend on your lender; but most lenders will eliminate the premium if you have made your payments on time, and the loan is more than one year old, and your loan to value ratio is 80% or better.  How do you determine if your loan to value ratio is 80%?    First find out what your first mortgage balance is now (how much do you owe on your first mortgage now). Take that number and divide it by .8, the result is the minimum amount that your home must be worth in order to eliminate the PMI premium. Lets say you presently owe $150,000, just divide that number by .8 (150,000 divided by .8 = 187,500). In this case your house has to be worth at least $187,500 eliminate the PMI premium.

Lets assume that you think you might qualify for eliminating the PMI premium. What do you do next? You should contact your lender, ask them if you are paying PMI premiums, and what you must do to eliminate the premium. Insist that they send you a letter to explain the procedure. After you get the letter call Paragon Appraisal Service, we will be happy to discuss your particular situation with you and determine if there is anything we can do to help.

Larry Hoy

Certified Residential Appraiser

Paragon Appraisal Service

(303) 469-2080