Every month, if you
are like most of us, you dutifully make your mortgage payment. Have
you ever really given any serious consideration to exactly what
makes up your monthly payment? For most of us, the mortgage payment
not only pays off the mortgage loan, but a portion also gets put
into an escrow account to pay for real estate taxes and a variety of
different types of insurance (homeowners, hazard, flood, PMI etc.).
If you purchased your home with conventional financing and put down
(payment) less than 20% it is quite likely that you are paying for
private mortgage insurance. Private mortgage insurance protects the
mortgage lender or investor against loss if a borrower stops making
payments, and typically costs the borrower between; $25 to $100, a
month. Some homeowners pay this insurance for many years after it is
no longer needed and could end up paying an extra $5000 or even
$10,000 or more in useless insurance premiums.
Here is the good
part that many homeowners are clueless about - Once you have reached
20% equity in your home by appreciation, improvements made to the
home or paying down the principal balance of the mortgage (or any
combination of the three), you can force the lender to cancel the
private mortgage insurance. All you have to do is request in writing
that the private mortgage insurance be canceled (most lenders have a
brief form which must be filled out) and provide the lender with
proof of sufficient (over 20%) equity. In most cases the necessary
proof is a (state) certified appraisal on the appropriate form
(URAR-1004 uniform residential appraisal report for single family
homes). Recent legislation (the Homeowners Protection Act) requires
servicing lenders to make homeowners aware of the existence of any
PMI Insurance they might be paying for and the requirements
necessary to have it cancelled. Fortunately, though, you don't have
to wait for the lenders notification to rid yourself of private
mortgage insurance. If you have sufficient (20%) equity, you can
probably in most cases cancel it almost immediately.
Private mortgage
insurance is not required in all instances. The general rule is that
if a homeowner has put down less than 20% down on a home purchase
(single family), mortgage insurance will be required. Homes
purchased with a down payment of at least 20% should have enough
equity to cover any potential losses by the lender, so mortgage
insurance is generally not required. There has been a surge in the
mortgage insurance industry because of the popularity of purchasing
homes with less than 20% down. MICA claims that because of mortgage
insurance making up for the down payment difference, 15 million
Americans have been able to purchase homes over the past four
decades.
Mortgage
insurance does not protect a homeowner against loss, so a borrower
that is required to purchase it will probably never deal with the
mortgage insurance company. All dealings concerning mortgage
insurance are usually handled by the lender. It is also the lender
(or the eventual purchaser of your mortgage loan, if any) who has
the ultimate decision when it comes to mortgage insurance, meaning
how much and when the homeowner has built up enough equity in the
property to drop the insurance. Therefore one must remain in contact
with the lending institution which services their mortgage (collects
the monthly payments) to inquire about this type of insurance and
the requirements necessary to have it cancelled.
After a
homeowner has built up 20% equity for a single family owner occupied
residence (a few banks may require as much as 25% equity - check
your loan documents to ascertain what applies in your situation). in
the house, they may begin to initiate steps towards canceling the
mortgage insurance. The first step is to contact the lending
institution to where you send your mortgage payments (loan servicing
agent / company). This may or may not be the lender who gave you
the loan originally. Your loan servicing agent or company will be
able to help you with the cancellation procedure and will also be
able to tell you exactly how much your remaining mortgage balance
is. Every loan servicing institution can have different policies
regarding this procedure. Ask your servicing lender to provide in
writing their specific requirements to cancel PMI insurance.
You must keep in
mind that it is the servicing institutions ultimate decision and
that they will take many factors into consideration including the
borrower's payment history over the life of the loan before allowing
you to drop this insurance. This factor alone could alter the
servicing companies decision.
Although
mortgage insurance may have allowed you to purchase a home, there
will come a time when this added monthly expense will no longer
directly benefit you. Therefore, it is in your best interest to keep
the provisions surrounding it's cancellation in mind because no one
is going to cancel it for you.
You are,
ultimately, your own financial advisor, and even the smallest
expenses should be eliminated if at all possible. By continuing to
carry insurance which is no longer required, nor needed only
decreases the amount of money you have available in your pocket or
your bank account.
Most lenders
require a real estate appraisal by a state certified appraiser as
the primary proof required to eliminate unnecessary PMI insurance.
Trinity
Appraisal Services specialize in helping folks just like you rid
themselves of unneeded and unwanted PMI insurance. We offer a free
initial consultation and will help you to determine for your self at
no charge or obligation if you have sufficient equity in your home
to enable you to have your PMI insurance cancelled.
