Stop Paying PMI

Millions of homeowners were required to get private mortgage insurance (PMI) at the time they purchased their homes, due to having made downpaments of less than 20 percent. The monthly mortgage payment includes as much as $150 that represents the PMI premium.

You can get so accustomed to making that identical mortgage payment every month, some people stay on auto-pilot and continue paying for a policy they’re entitled to cancel.

Typically, if you’ve reached the 20% equity level, you’re eligible. If your mortgage is less than 5 years old, it’s 25%. You also need to have a good track record for making mortgage payments. That means having had no more than one late-payment penalty in the past year; no payments over 30 days late in that same time frame; nor, any notice of default recorded against the property.

If that sounds like you, and if you haven’t gone through the process, there are user-friendly resources to help you get the cancellation process started.

First, you’ll need to confirm your eligibility. The Mortgage Insurance Companies of America (MICA), the trade association for mortgage insurers, sponsors an excellent website (http://www.privatemi.com/cancel/index.cfm) that offers an eligibility calculator, as well as sample letters to send to mortgage servicers that will help you jump start the cancellation process.

If you are eligible to cancel your PMI, your servicer might require an updated appraisal of your home. Don’t rush out and have an appraisal done yourself, though. Mortgage servicers use their own sources to select an appraiser for the job.

If you don’t want to handle the cancellation personally, you can hire someone else to do it for you. PMI cancellation services take over all of the correspondence, escrow account analyses and any disputes with servicers. Figure on spending about $500, including the appraisal. An Internet search for “Cancel PMI” will help you locate a local company.

You’ve worked hard to have accumulated 20% equity in your home. Don’t pay for something you no longer need!

Even if you know you’re not eligible yet, use the eligibility calculator to figure out when you WILL be and keep that date posted prominently somewhere in your records. Or even, for instance, on the refrigerator. It’ll remind you daily of something positive you’re working toward that’ll be worth celebrating when the time comes.

There is another strategy buyers are using these days and that is the second line of credit. By getting a 80/20 or 80/10/10 loan, lenders will waive the PMI but then you will of course have the second line of credit payment until that is paid off. But the benefits may be worth it in some cases.