Ditching PMI – Part 1

 

PMI, or Private Mortgage Insurance, is a fact of life for many home buyers these days. Most sort of understand it as a requirement to get the loan. What the insurance does is protect the lender (and the underwriter) after they have given you the usual financial colonoscopy in case you stop making payments. Just be aware, PMI is part of the price or admission but it does nothing to protect you or your interests.

This is usually required if you are unable to put the down the desired 20% when buing a home. Yes, you can get a home loan for 3% down, or sometimes less, but it will cost you, in terms of interest rate and PMI premiums. While I am no fan of the banksters doing this, in reality, lower down payment loans do present a higher risk. Of course they can always boot you out on the street (maybe not now though) and take the property back, but that is expensive for them, and rarely a winning proposition. We will look at PMI from the perspective of homeowners already caught in its clutches. Next time, we will look at it from the buyers angle and what they may be able to do about it.

Is PMI As Certain As Death And Taxes?

If you've been in the property for a while, there are several strategies available to remove this financial waste from your monthly budget. There are even some approaches you can look at if you are just buying currently... but more about that next time.

Refinance

If you have built up some equity over time and watched real estate values rising, taking you to the desired 20% equity position, you may be able to refinance with new terms. If your current lender won't do it, and your payments are current, there are many of other institutions anxious to sell you a loan. However, don't go looking to pull out a wad of cash as you take advantage of the increased value... otherwise you will be back in PMI territory once again.

Get A New Appraisal

By this I mean a thorough appraisal from a licensed appraiser. Not that you friendly local realtor wouldn't be happy to give you an idea of what your home is worth, but lending institutions have more confidence in a bona fide professional appraiser. You can take this to your current lender and stand their with your hat in hand while they run it through the various, hidden (to you) people who will make the decision to allow you to remove the extra charge each month. If that doesn't go well or your patience runs out, you can use it as you pursue a refinance else where. It could be well worth the several hundred dollars in the money saved.

Pay The Balance Down Faster

Given the nature of most mortgages, the early years show small reductions in the principle owed and most of the payment goes toward interest, adding what you can to each payment will help increase your equity faster and shorten the length of your loan. It will help if you can get an amortization schedule for your loan so you can see what is actually going on with your payments. Doubling the amount that goes to the principle each month will increase your equity to the point of releasing PMI more quickly and save you even more money as it reduces the number of payments to pay off your home. However much more you can pay off will be to your benefit.

Wait Patiently For The Banksters

In theory PMI should be removed when you achieve 20 to 22% equity in your property. However since this is of greater concern to you than the lender, you may have to initiate action to get the job done. Sometimes they are a little slow to respond and they may need to be reminded that the Homeowners Protection Act of 1999 makes removal mandatory and forbids the lender from keeping PMI in place for the life of the loan.

Look at what you are paying each month and think about what you could using the money for you rather than protecting the banksters. Putting PMI behind you may not be as difficult as you think.