Many of our first time home buyer clients will ask us what private mortgage insurance is! Private mortgage insurance is there for the lender. It is insurance against the possibility that you will default on your home loan. Since you didn’t have the financial power to put the 20% down on the house, the lender considers you a riskier investment and wants to be certain that it will be covered in case you stop making your monthly payments and default on your loan. Unfortunately, this mortgage insurance referred to as PMI in the biz, can take a high toll your monthly mortgage bill.
If you purchased your house for $300,000 and you have a PMI of 1/2%, you are looking at an extra $1500 a year in payments – or an additional $125 a month!
Can you eliminate this expense considering you don’t have the initial 20% PLUS closing costs to put down on a house? YES!
The conventional way to rid of PMI is if you pay your mortgage down to 80% or less. Unfortunately, getting down to the 80% level is going to take time, so it’s nice to know there are other avenues to consider!
You Keep Getting Those Refinancing Letters In The Mail Right?
This may be an option if you think that your home has appreciated in value enough. If you can get a loan that accounts for less than 80% of the home’s value, then you could be able to eliminate the PMI. BUT- You need to make absolutely sure that refinancing makes financial sense. Please call us first! What those mailers do not tell you is the mortgage rate TODAY comapred to when you purchased! These change daily so comparing the long term interest accrued to the monthly PMI you are paying now is incredibly important!
Remember That Appraisal You Paid For Before You Closed?
If your home has increased in value enough, you may be able to convince your lender to drop the PMI with an appraisal. Definitely discuss with your lender if they will accept an appraisal and reconsider the removal of the fee BEFORE you order and purchase an appraisal. Second, definitely call us to make sure the valued in your neighborhood really did increase before paying an appraiser to possibly let you down!
But You Did Extensive Remodeling!
If you remodeled your home in such a way that it increased your home’s value enough, you may be able to hit the 80% mark and get rid of the PMI. Just remember not every remodeling project adds value to your home! Please call us to find out what is financially smart to update and what you should not over improve!
Can You Afford To Make Bigger Payments?
A lot of financial consultants will tell you the secret to paying your mortgage down faster is to pay more! How do you pay more between life, and meals, and unexpected expenses? Pay your mortgage bi-weekly by splitting your mortgage payment in two! Being there are 52 weeks in every year you are automatically paying an additional month every year! BUT- Make sure you specifically add in the memo that the balance is to go toward your principal only!
If you did pay down your loan early, you will need to make a request in writing to have the lender terminate the PMI. Just make sure you do not have any late payments for the duration of your loan!
This may be like a lot of information, and this why we are always here for any real estate questions you have!