Drop PMI from Your House Payment


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.


Refinance…Rates Are Headed North

Home loan interest rates have risen over the last week.  We have enjoyed rates in the  “3’s” for the last several   months.  Today, however, we are nudging up against 4.0%.  The impact on home loan payments, and qualifying is really surprising! Here, for example, is the affect on a $300,000 fixed rate, fully amortized loan that went up .5% from 3.5 to 4.0%:

4.0%                                       $1,432.25/ mth
3.5%                                      – 1,347.13/ mth
Increase:                                    $85.12 every month
Increase in income to qualify:  $224/ mth

4.5%                                      $1,520.06/ mth
3.5%                                      – 1,347.13/ mth
Increase:                                 $172.93 every month
Increase in income to qualify:     $455/ mth

So, will the interest rates go up further?  How much?  How fast?  What do you think?  This is not a time to ponder.  It’s a time to pursue! Why not text or email me your current: Loan Balance, Principle & Interest payment, and interest rate.  Or, you could just email me a copy of your current home loan statement.  I will send back to you how much a refinance will save you each month.

(APR for 3.5%: 3.875%, 4.0%s APR: 4.374%, APR for 4.5%: 4.873%)

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Today’s The Day

If you have been waiting to buy a home, NOW is the time.

If you have been waiting to refinance your current home today is the day.

Neither these rates nor the sale prices will remain down here much longer.  Some day soon the bills for “CHANGE” will come due and we’ll see the rates begin to rise.

Look at this AP article for more details.

Gilroy home values have already bounced off the bottom.  Likewise, Morgan Hill and Hollister homes have seen a balance in demand and supply.

Time for your co-workers, friends and family to make their move.

What do you think?