Thursday, February 20, 2014

Get Rid of Your PMI

If you put less than 20% down when you purchased your home you are probably paying Property Mortgage Insurance (PMI) as part of your monthly payment. Like buying new tires, paying PMI is no fun and it is expensive. (With the exception of my little brother nobody has ever noticed I got new tires) Luckily, is possible and pretty easy to get rid of your PMI.

First, you need to understand your home’s loan-to-value ratio (LTV). The LTV is the difference between the amount of your loan and your home’s value. To calculate your LTV simply divide your loan amount by the current value of your home. For example, if you owe $135,000 and your house is now worth $150,000, your LTV would be 0.9, or 90 percent.

Your LTV changes over time, and once it reaches 80 percent or lower, the PMI is no longer a requirement. The simplest method to get to this point is to keep paying your mortgage as planned, but that can take years.

If your home has increased in value, whether it’s due to remodeling improvements or rising home values in your area, you can have your PMI removed much sooner. (Home prices have been rising steadily in Utah the last few years so your LTV may be closer to 80% or less than you think.)
You don't need to refinance to get rid of your PMI. Simply contact your lender, let them know your LTV is below 80 percent and ask them to cancel your PMI. Your lender will probably require an appraisal to confirm the value of your home. Appraisals can be costly so call me first so I can give you an accurate idea of your home's value. If you meet the bank's guidelines (some lenders require you to keep your PMI for a minimum number of years before you can have it removed) they should be willing to work with you to get rid of that extra cost.

Now you will have enough extra cash for those new tires! ;)

(PMI rules do apply differently for FHA loans, particularly those originate after 6/1/13. Call me and I will give you the details.)

1 comment:

  1. Hey, PMI does NOT help me! Why do i have to pay to mitigate the risk for a mortgage company? They don't pay my home insurance. They don't guarantee my home won't go down in value. Plus they charge me interest for the money i borrow from them. PMI is a cost the mortgage company should pay. We the home owner get screwed because mortgage company's need to keep selling mortgage's to keep making boat loads of money but they no longer want to assume any risk of default. Makes me sick.Thank you!
    Joe smith.