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Removing private mortgage insurance
By
Bankrate.com
If you
secured a home loan with less than a 20
percent down payment, chances are your
lender required you to buy mortgage
insurance to cover its exposure in case you
default.
Once your equity position in the home
reaches 20 percent, however, you will want
to stop paying mortgage insurance (unless
you have an FHA-insured loan, which requires
premium payments to the government for the
life of the loan).
Know your rights
By law, your lender must tell you at closing
how many years and months it will take you
to pay down your loan sufficiently to cancel
mortgage insurance.
Most home buyers ask that mortgage insurance
be canceled once they pay their loan balance
down to 80 percent of their home's original
appraised value. When their balances drop to
78 percent, their mortgage servicer is
required to cancel mortgage insurance for
them. Mortgage servicers also must give
borrowers an annual statement that shows who
to call for information about canceling
mortgage insurance.
The law does allow lenders to require
mortgage insurance of a high-risk borrower
until the balance shrinks to 50 percent of
the home's value. You may fall into this
high-risk category if you have missed
mortgage payments, so make sure your
payments are up to date before asking your
lender to drop mortgage insurance. Lenders
may require a higher equity percentage if
the property has been converted to rental
use.
Calculate the equity in your home
• Equity = Value - Mortgage balance
• Percent of Equity = Equity / Value
Example: If you estimate (or, better yet, if
you have it appraised) that the home is
worth $200,000, and you owe $150,000 on the
mortgage, your equity is $50,000 (the
$200,000 value minus the $150,000 mortgage
balance). You have 25 percent equity in the
home (the $50,000 equity divided by $200,000
equals 0.25, or 25 percent).
With equity of 20 percent or greater, you
have a good case to rid yourself of mortgage
insurance. If you can't persuade your lender
to drop mortgage insurance, consider
refinancing. If your home value has
increased enough, the new lender won't
require mortgage insurance. Make sure,
however, that your refinance costs don't
exceed the money you save by eliminating
mortgage insurance.
No more mortgage insurance
Here are steps you can take to get out from
under mortgage insurance even sooner or
strengthen your negotiating position: • Get
a new appraisal: Some lenders will consider
a new appraisal instead of the original
sales price or appraised value when deciding
if you meet the 20 percent equity threshold.
Cost of an appraisal generally runs from
$300 to $500.
• Prepay on your loan: Even $50 a month can
mean a dramatic drop in your loan balance
over time.
• Remodel: Add a room or a pool to increase
your home's market value. Then, ask the
lender to recalculate your loan-to-value
ratio using the new value figure.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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