What is Private Mortgage Insurance?

Private mortgage insurance (also known as "PMI") is usually required when you borrow money for a house and your loan balance exceeds 80% of what your house is worth. For example- let's say your house is worth $100,000. Your lender would likely require PMI if you borrow more than $80,000. You would pay a PMI premium as part of your monthly mortgage payment. You can check your payment information from your lender for the exact amount you pay. We've had clients pay anywhere between $30 and about $120 per month. PMI can obviously be very costly.

Who benefits by having PMI?

PMI is a benefit for the lender in case you stop making your loan payments and go into foreclosure. The PMI covers part or all of their loss depending on the agreement with the company that provides the PMI. It is not insurance for you! You do benefit from PMI somewhat when you purchase your house because it allows you to have less of a down payment than what would normally be required. However, once you build up at least 20% equity then most lenders are required to drop your monthly PMI payments. This equity build up can be accomplished by your house increasing in value over time and/or a drop in your mortgage balance as you continue to make your payments. If your neighborhood values have been increasing or if you've made improvements to your house, then you may have more equity than you think.

Does my lender have to remove PMI when I get 20% equity?

Typically, yes. However, your lender may have some other guidelines such as a requirement that you actually keep your mortgage for a certain amount of time and that all of your payments are current and they'll make sure you haven't placed any more mortgages against your property. You'll need to contact your lender for their specific requirements. The removal of PMI became much easier in 1998 when a new law called the Homeowner's Protection Act of 1998 was passed. The new Act requires lenders to be more proactive with letting you know your rights with respect to removing your PMI. You probably received information on PMI removal with your closing documents when you closed on your mortgage loan. Your lender should also be providing yearly notification of the PMI removal process.

How do I know how much equity I have?

You can determine your equity by ordering a current appraisal on your property. The difference between the market value of your house and your loan balance equals your equity. We can provide that sort of appraisal for you. While we can't guarantee that you'll have 20% equity, at least you'll know for sure by ordering an appraisal. If you don't have 20% equity then you'll need to check the value of your house again in the future. Most people pay a high enough PMI premium so that our appraisal fee is recouped in about 2-3 months. We provide a substantially discounted fee to develop another appraisal on your house in the future. Beware of any appraiser who accepts an order from you and guarantees that the value of your house will be high enough before doing the work. That's against the law. Furthermore, most lenders will review any appraisal you provide to them to ensure accuracy.

So, what do I do next?

The first step is to contact your lender to see what requirements they have for dropping PMI. You can find their telephone number in your monthly payment book. Some lenders will require that you send them a letter requesting information on the PMI removal process. They'll typically require that you provide them with an appraisal by a state licensed or certified appraiser. Once you have that information then give us a call we'll answer any questions you may have.

To order an appraisal of your property call us at (907) 522-1031.