Tuesday, November 9, 2010 - Article by: Michele Zelvis - First Priority Financial -
How To Get Rid of Your PMI
Private mortgage insurance (PMI) is designed to protect the lender if you default on your mortgage payments and your house is not worth enough to repay the lender by way of a foreclosure sale. Most lenders only require PMI on loans when the down payment is less than 20%. For example, if your home is worth $200,000 and you put 10% down then most lenders would require you to have PMI.
When Should You try to Cancel Your
Since most lenders only require PMI to cover losses if you default on your home loan, you should start trying to cancel it as soon as you have around 20% equity in your home. There are two ways this can happen; obviously when you make enough mortgage payments to have 20% equity (which can be awhile) or when your house goes up in value. The second way is typically the most efficient way to get your PMI removed. Although some places in the country have suffered horrendous home value drops, much of the country's home values have risen steadily over the last decade. Check your home value based on free home estimates from sites like Zillow and Trulia. Although these sites are not 100% accurate they can give you a fair idea of whether home values in your area are rising or falling. They take a look at the other homes that are selling in your area and compare them to yours based on specs like square footage.
How to get Your PMI Cancelled
Although there is not an exact science to getting your PMI dropped the only one who can really get this done is the company your loan is with. The best guidelines for canceling your PMI can be found in the federal "Homeowners' Protection Act," however, that only applies to people that purchased their home after July 29th, 1999. The act says that you can ask your lender to drop your PMI once you pay off the amount to 80% of the loan and that lenders MUST drop PMI when you reach 78% of the original loan amount. Most lenders require that you pay PMI for at least 2 years, even if you pay down your mortgage under 80%. Remember, if your home value goes up significantly make sure you check the balance on your loan and see if you can refinance your mortgage to get rid of your PMI.
In today's ever changing economic climate it is important to make sure you aren't paying out money that you could be saving. I hope this article provides you another way to save money in these tough times. If you have any questions regarding Private Mortgage Insurance or anything else, please don't hesitate to call or email me.
I hope you have a great week and as always, thanks for reading!
- Michele Zelvis
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