Because of the drastic rise in home prices you may be able to drop your PMI now! First thing's first--what is PMI?
"PMI is a type of insurance that lenders require for certain mortgages with high LTV ratios. Lenders always accept some level of risk with mortgages. However, PMI can help lower the risk that some mortgages bring. Although you pay for PMI as the borrower, this insurance doesn't protect you. Instead, it protects the lender. If you default on your mortgage, PMI pays part of the remaining balance of the loan to the lender. However, PMI does offer some benefits to you as the borrower. Paying PMI may help qualify you for a conventional loan that you wouldn't be eligible for under other circumstances".
Can you reduce or eliminate PMI?
If you're concerned about this extra expense, you'll be relieved to know that PMI usually ends before your loan does since lenders only require you to pay PMI while your LTV is above 80%. Once your LTV is below 80%, you can request to stop paying PMI.
To determine when your loan will reach the point where you no longer need PMI, lenders use an amortization schedule. If you opted to pay PMI at closing, your lender already used this schedule to calculate your total PMI amount. In most cases, you can't reduce or get a refund for part of your upfront premium.
If you pay a monthly premium, you may be able to eliminate PMI a little early since lenders end PMI automatically when you're scheduled to reach the 78% LTV point. You may qualify for early PMI termination if you meet the following criteria:
Your LTV is 80% or lower
Your loan started on or after July 29, 1999, when the Homeowners Protection Act(Opens Overlay) began
You're current on your mortgage payments
Call your lender to cancel PMI early if you meet these qualifications. Typically, your lender will request a broker price opinion (BPO) to confirm the current market value of your home. Your lender needs this data to calculate your current LTV. If the value of your home has decreased significantly, your LTV may have increased, which could disqualify you for early PMI termination.
As the borrower, you generally have to pay for the BPO or appraisal, which could cost a few hundred dollars. Depending on your monthly premium, however, ending PMI early could save you hundreds or thousands of dollars.
So are you paying for PMI? If you are you may be able to drop this expense. We would be happy to run the value of you home so you can determine if you are able to drop the PMI and maybe take that money and apply it to your principle instead of giving it away.
Information sourced from
Charles "Skip" Geiser
Plum Tree Real Estate Marketing