PMI - Private Mortgage Insurance
It is important to note that this law only applies to home loans that closed after July, 1999. Certain conditions must be met, such as being current on the loan payments. Buyers that financed before July 1999 can have their PMI removed, but they must request it from the mortgage lender.
In recent years it has become increasingly more common for home buyers to use down payments of 10 percent or less. Loaning this much extra on homes puts the lender at greater risk. So, to offset these risk, these transactions often require Private Mortgage Insurance or PMI. This supplemental policy protects the lender if a borrower defaults on their loan, because the value of the house may be lower than the balance on the loan.
In most cases when a person secures a loan with a 20 percent or more down payment, PMI is not necessary. The lender feels the home owner will not default on a loan with this level of investment
PMI has been a money-maker for mortgage lenders. The amount of the insurance is commonly figured into the mortgage payment. Given the size of the mortgage payment, the cost of the PMI is usually overlooked. Homeowners continue to pay the PMI even after their loan balance has dropped below the 80 percent threshold. Usually never thinking about the fact that the PMI can be dropped, thus not having to pay that extra money each month. It can easly cost several hundred extra dollars each year.
Until recently lenders were under no obligation to tell home owners when they had reached a point where the PMI can be dropped. That all changed in 1999, when the Homeowners Protection Act took effect. In most cases, this law now obligates lenders to terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy homeowners can get off the hook a little earlier. The law states that, upon the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent!
There is another way that home owner's equity can increase above the 80/20 percent ratio. In areas where significant gains in the value of real estate has grown to the point where the amount of principal they owe on their loan is less than 80 percent of the home's current value. In most cases, the lenders are under no legal obligation to remove the PMI. However, when the home owner has been prompt on their loan payments and don't represent a risk, the lenders usually agree to remove the extra fees.
The hardest thing for most home owners is to know when their home equity rise above this 20 percent treshold. Daily Appraisal is a certified licensed real estate appraisal company and can provide you with a valuation appraisal. It is an appraiser's job to know the market of their area. They know when property values have risen - or declined. Many appraisers offer specific services to help customers find the value of their homes and remove PMI payments. Faced with this data, the mortgage company will most often eliminate the PMI with little trouble. An average appraisal for an average house in todays market will probabley cost between $300 and $500. The savings from dropping the PMI pays for that appraisal in a matter of months. The home owner can enjoy the savings from that point on.