Want to Get Rid of that Monthly PMI Payment? |
When a home purchaser's down payment is less than 20% of the purchase price, they must obtain Private Mortgage Insurance in order to get a loan. This is about one in every three new loans. Getting rid of the Private Mortgage Insurance will save you considerable money, but it is not easy to get mortgage companies to drop the requirement. The borrower pays it, but the lender gets the benefit -- PMI assures the lenders will get back their money if the borrower defaults on the mortgage loan. The insurance isn't cheap either, $47 a month for someone who puts 10% down on a $100,000 loan and $74 at 5% down. The Homeowners Protection Act, which became law in 1999, provides some relief, but still favors the lenders. Here are the highlights of that law.
If your home has appreciated in value so that you have 20% equity, you could refinance. However, paying closing costs to cancel the PMI payment will reduce or eliminate your cost savings. So what's a savvy homeowner to do? Stay on top of the property values in your neighborhood and contact your lender to ask about its policies toward PMI. Many lenders will offer to drop the PMI policy when asked, although they may first require you to pay for an appraisal to show you have reached 20% equity and that the property doesn't have a second mortgage.
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