What is PMI?

PMI is an acronym for Private Mortgage Insurance. When making a mortgage loan your lender will require you to purchase this insurance when the amount of money borrowed exceeds 80% of the value of the property that secures the loan.

Even though you buy and pay for the insurance the insurance is to cover any losses the lender may have in case of a loan default. Since the insurance does not protect you, you should cancel it as soon as you can.

How much is PMI costing me?

PMI is a big money-maker for the mortgage lenders. The amount of the insurance - often $40-$50 per month for a $100,000 loan and increasing as the size of the loan goes up. The payments are commonly rolled into the mortgage payment and this additional fee is often overlooked, leaving homeowners paying for PMI long after they are no longer required to.

How to cancel my PMI?

By law the lender will cancel the insurance if the loan is in good standing and when the loan balance reaches 78% of the original loan amount. The lender is not required to consider any increase in value in your home, just the reduction in the debt from your loan payments. Based on the type of loan you have this may take years. However, you can have the lender terminate your PMI much sooner by showing that the loan balance represents 80% or less of the value of the home. You do this by having an appraisal of your home done and simply submitting a written request to your lender to terminate the PMI.

How much can I save by canceling my PMI?

Every one is different but the following is an example of the savings they you could have.

Assume you purchase a home for $110,000 by borrowing $100,000 for 30 years at 7%. If you do not request the lender to remove the PMI it would take almost 13 years to reach the point where the lender would by law be required to terminate the insurance. You would have paid almost $7,800 in PMI premiums.

By combining the increase in your home's value, assuming an increase of only 2%/year, and the balance reduction, as you make your payments, you could reach the 80% loan to value ratio necessary to allow you to terminate your PMI in less than five years. The savings could be as much as $4,800.

To see if you can cancel you PMI, contact us.  We can help.