Since home values have risen over the last 18 months we are often asked: “How do I drop that Private Mortgage Insurance (PMI) from our house payment?”
So here is the Good News and the Bad News:
Good: “The Homeowner’s Protection Act of 1998“: home lenders MUST drop the PMI when the loan balance reaches 78% of the original value.
Bad: “78% of ORIGINAL VALUE” means the price you paid for the home, NOT today’s appreciated value. Additionally, most lenders require that you have a 2-5 year payment history with them before they will consider your request.
Additional ‘Bad’: Even if you have paid extra toward your loan balance the lenders look to the original amortization schedule to determine when you reach 78% in order to drop the PMI. That typically takes 9 – 10 years.
Once you have 80% equity you can ask the lender to cancel your PMI however, there is no guaranty they will.
While the Federal Housing Administration (FHA) is not governed by the same law they do have a similar ‘78%’ rule with the added proviso that the payment needs to have been made for at least 5 years or your balance is 78% of the original value – whichever comes later. FHA’s insurance for loans originated after 7/1/2013 however, is permanent.
Good: You don’t have to wait for the magical date on your amortization table…you can refinance your current loan. In the South County (Morgan Hill, Gilroy, Hollister, San Juan Bautista) home values rose over 36% in 2013 from 2012. With at least 20% (new equity) your new loan will not need PMI. On a $300,000 purchase where you put originally put 5% down to a $285,000 loan, the PMI would cost roughly $220 every month*. Even if you include the closing costs in your refinance loan you will still have a lower payment due to no PMI; probably a savings of $150 or more per month.
In a 5 minute visit I can tell you what YOUR particular numbers will look like. Text, email or call me. Let’s get rid of that PMI before another month rolls by.