Eliminating Private Mortgage Insurance
For loans made after July 1999, lenders are required by federal law to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of your purchase price - not when you achieve 22 percent equity, which will happen much more quickly with rising property values. (Certain "higher risk" loans are excluded.) But you have the right to cancel PMI (for loans made after July 1999) once your equity reaches 20 percent, regardless of the original purchase price.
Keep track of your principal payments. Also keep track of what other homes are selling for in your neighborhood. If your loan is under five years old, chances are you haven't paid down much principal - it's been mostly interest. But property values in many parts of the country have gone through the roof. And that can earn you 20 percent equity even if you haven't paid down much principal. If you are in an area that is experiencing falling property values, you must act quickly!
When you think you've reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments! You will need to notify your mortgage lender that you want to cancel PMI payments and you'll need to submit proof that you have at least 20 percent equity. A state certified appraisal on the appropriate form (URAR- 1004 uniform residential appraisal report for single family homes) is the best proof there is - and most lenders require one before they'll cancel PMI.
For those of you unlucky enough to owe 100% (or more) of your value, try to pay extra on your principal monthly so that you are paying at least 1 extra payment per year. By doing this, you could save thousands in interest over the life of the loan, which can help offset the cost of PMI.
For 2007 (at least) PMI is tax deductible for most income brackets - so if you don't foresee yourself getting out of PMI in the near future, at least you will be able to write it off!
Gareth Bourriague / Benchmark Mortgage - http://www.benchmarkofbr.com
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