What is PMI?
PMI is Private Mortgage Insurance. In recent years, with home prices skyrocketing, buyers have been using down payments of 10, 5 or even 0%. This presents the lender with a higher than 80% loan to value ration (LTV) and a higher risk. To offset this, these loans typically require PMI. This protects the lender in case a borrower defaults on the loan, and the value of the house is lower than the loan balance.
How much is PMI? The amount of the insurance can range from $50-$250 per month, depending on the sales price of the home.
Do I have to pay PMI? Until recently, lenders were not obligated to tell home owners when they had reached a point where the PMI can be dropped. In 1999, the Homeowners Protection Act took effect. In most cases, this law obligates lenders to terminate the PMI when the LTV reaches 78%. But you do not have to wait until this point. Upon request of the home owner, the PMI can be dropped when the principal amount reaches 80%.
Can I get rid of my PMI? Many areas have seen considerable gains in values of real estate in recent years. Or maybe you have done some improvement to your home. If a professional appraisal finds that your value has increased and your LTV ratio is less than 80%, you can request to have your PMI removed. In most cases as long as the homeowner has a history of making timely payments, the lender will agree to remove the extra fees. The savings from dropping the PMI pays for the appraisal in a matter of months.