Private Mortgage Insurance(PMI)
Private Mortage Insurance(PMI) is charged when a borrower buys a property but puts down less than 20% down on their mortgage purchase. PMI protects the mortgage company in case you stop making your monthly payments, among other things that will negatively affect your ability to pay back the loan. It is an added protection for lenders. PMI is usually one ½ of 1% of the home loan, and it is broken down and charged montly to your mortgage balance. Most borrowers pay less than a $100 a month for this. Some homeowner are not fully aware that their lender is charging them this kind of insurance on top of their regular principal, interest, and/or escrow payment if the loan is escrowed, or if it has a force escrow in place. There are ways to get around this unnecessary PMI but it could take some time, especially in this mortgage climate.
If you are aware that you are being charged for PMI and you are wondering if it will ever stop being charged on your mortgage payment, do not worry, it can be stopped. You can stop this charge if you are in good standing with your mortgage loan, meaning being on time with your payments, and you have at least 20% equity in the property you are financing. For example, if you had a mortgage loan for $200,000 and you make less than a 20% down payment, and now your property is worth $240,000 in value.Your property would not have 20% equity. However there are many mortgage companies that require a 22% equity to drop the PMI. You would have to do is do a Broker Price Opinion(BPO) or a Comparable Market Analysis(CMA) on your property, and send it in to your lender and request for them to remove the added PMI being charged monthly in your payments. If your lender is not willing to go with a BPO or a CMA, you might have to do an appraisal on the property to prove your property’s new value to your lender to remove the unnecessary monthly charge. A BPO and CMA are less expensive ways to have a professional evaluate your property’s value, but an appraisal is a lot more in depth, therefore costing a lot more to get your property’s value. Good appraisals can run in the thousands in some cases and are very detailed, while a BPO or a CMA are usually a few hundred dollars. You might want to call your lender to see which one would be more acceptable for you to provide to them to evaluate your property’s new value in order to get rid of your PMI.
There is no reason for a borrower to keep paying PMI when it is an unnecessary waste of money. I have seen homeowners pay this expense in the past, and I’ve wondered why on earth anyone would keep paying this expense unless they did not know any better. Some homeowners are not aware that they can get rid of this charge in time, especially when the housing markets starts to appreciate once again. Some area are showing mortgage appreciate at this moment in time and it‘s just September 2010 currently. Yes, places like Dallas, Houston, areas in Nebraska and Oklahoma, just modest appreciation but it is still appreciation. This is just a snap shot of what is to come for the whole country in times. After all the recession has officially ended back in June 2009, even though it may not seem that way, based on Harvard studies.
