August 11th, 2017 5:56 AM by Jackie A. Graves, President
you bought a house with a down payment of less than 20 percent, your lender
required you to buy mortgage insurance. The same goes if you refinanced with
less than 20 percent equity.
Private mortgage insurance is
expensive, and you can remove it after you have met some conditions.
To remove PMI, or private mortgage insurance, you must have at
least 20 percent equity in the home. You may ask the lender to cancel PMI when
you have paid down the mortgage balance to 80 percent of the home's original
appraised value. When the balance drops to 78 percent, the mortgage servicer is
required to eliminate PMI.
Although you can cancel private
mortgage insurance, you cannot cancel Federal Housing Administration insurance.
You can get rid of FHA insurance by refinancing into a non-FHA-insured loan.
Here are steps you can take to
cancel mortgage insurance sooner or strengthen your negotiating position: Refinance: If
your home value has increased enough, the new lender won't require mortgage
mortgage rates are low, as they are now, refinancing can allow you not only to
get rid of PMI, but to reduce your monthly interest payments. It's a
double-whammy of savings.
refinancing tactic works if your home has gained substantial value since the
last time you got a mortgage. For example, if you bought your house four years
ago with a 10 percent down payment, and the home's value has gone up 15 percent
over that time, you now owe less than 80 percent of what the home is worth.
Under these circumstances, you can refinance into a new loan without having to
pay for PMI.
loans have a "seasoning requirement" that requires you to wait at
least two years before you can refinance to get rid of PMI. So if your loan is
less than 2 years old, you can ask for a PMI-canceling refi, but you're not
guaranteed to get approval.
insurance reimburses the lender if you default on your home loan. You, the
borrower, pay the premiums. When sold by a company, it's known as private
mortgage insurance, or PMI. The Federal Housing Administration, a government
agency, sells mortgage insurance, too.
law, your lender must tell you at closing how many years and months it will
take you to pay down your loan sufficiently to cancel mortgage insurance.
servicers must give borrowers an annual statement that shows whom to call for
information about canceling mortgage insurance.
down to 80% or 78%
To calculate whether your loan balance has fallen to 80 percent or
78 percent of original value, divide the current loan balance (the amount you
still owe) by the original appraised value (most likely, that's the same as the
Formula: Current loan balance / Original
Example: Dale owes $171,600 on a house that cost $220,000 several
$171,600 / $220,000 = 0.78.
That equals 78 percent, so it's time for Dale's mortgage insurance
to be canceled.
a fuller explanation of the above formula, read this article about figuring the loan-to-value ratio to remove PMI.
to the Consumer Financial Protection Bureau, you have to meet certain
requirements to remove PMI:
can impose stricter rules for high-risk borrowers. You may fall into this
high-risk category if you have missed mortgage payments, so make sure your
payments are up to date before asking your lender to drop mortgage insurance.
Lenders may require a higher equity percentage if the property has been
converted to rental use.
By Holden Lewis - To view
the original article click here