How To Get Rid OF PMI Insurance
October 30th, 2009
Are You Sick & Tired Of Paying PMI Insurance?
No Fear! there is a way to legally get rid of that PMI payment.
How to ask a mortgage company to cancel your private mortgage insurance
Private mortgage insurance (PMI) protects the lender if you default on your mortgage payments and your house isn’t worth enough to entirely repay the lender through a foreclosure sale. Lenders often require PMI for loans where the down payment is less than 20%. They add the cost to your mortgage payment each month. PMI can usually be canceled after your home’s value has risen enough to give you 20 to 25% equity in your house.
When you can get your PMI canceled?
Start trying to get your PMI cancelled as soon as you suspect that your equity in your home or its value has gone up significantly. The most obvious way for equity to increase is because you’ve made a lot of San Diego Ca mortgage payments. Your equity may also increase because your home’s value has gone up due to a rise in local home values or because you’ve remodeled. Such value-based rises in equity are harder to prove to your lender, and some lenders require you to wait a minimum time (around two years) before they will approve cancellation of PMI on this basis.
Did you choose to pay a higher interest rate on your mortgage in order to avoid PMI premiums? If so, don’t expect your lender to lower your payments after your equity has increased. Your interest rate is permanent, even if the lender used the extra money to purchase PMI to cover your loan. Your best course of action is probably to refinance.
How to get your PMI canceled.
The exact rules for canceling PMI are largely in the hands of your lender — or, to be more accurate, in the hands of the company from whom your lender buys the insurance (though you’ll never deal with that company directly).
Some baseline rules about cancellation were established by the federal “Homeowners’ Protection Act,” which applies to people who bought their homes after July 29, 1999. The Act says that you can ask that your PMI be canceled when you’ve paid down your mortgage to 80% of the loan, and that the lender must automatically cancel your PMI when you’ve hit 78%.
Here are the usual procedures for getting a lender to drop your PMI policy.
- Contact your lender to find out the appropriate PMI cancellation procedures.It’s best to write a letter to your San Diego Ca mortgage lender, formally requesting guidelines.
- Get your home appraised by a professional to find out its current market value.Your lender may require an appraisal even if you’re asking for a cancellation based on your many payments, since the lender needs reassurance that the home hasn’t declined in value. Although you’ll normally pay the appraiser’s bill, it’s best to use one whom your lender recommends and whose findings the lender will therefore respect. (Note: Your tax assessment may show an entirely different value from the appraiser’s — don’t be concerned, tax assessments often lag behind, and the tax assessor won’t see the appraiser’s report, thank goodness.)
- Calculate your “loan to value” (LTV) ratio using the results of the appraisal.This is a simple calculation — just divide your loan amount by your home’s value, to get a figure that should be in decimal points. If, for example, your loan is $200,000 and your home is appraised at $250,000, your LTV ratio is .8, or 80%.
- Compare your“loan to value” (LTV) ratio to that required by the lender. Most lenders require that your LTV ratio be 80% or lower before they will cancel your PMI. Note: Some lenders express the percentage in reverse, requiring at least 20% equity in the property, for example. When your LTV ratio reaches 78% based on the original value of your home, remember that the Homeowners’ Protection Act may require your lender to cancel your PMI without your asking. If the loan to value ratio is at the percentage required by your lender, follow the lender’s stated procedures for requesting a PMI cancellation.
If your lender refuses to cancel the PMI
Most lenders recognize that there’s little point in requiring PMI after it’s clear that you’re making your mortgage payments on time and that you have enough “equity” in your property to cover the loan if the lender has to foreclose. Nevertheless, many home buyers find their lenders to be frustratingly slow to wake up and cancel the coverage. The fact that they’ll have to spend time reviewing your file for no immediate gain and that the insurance company may also drag its feet are probably contributing factors.
Most lenders recognize that there’s little point in requiring PMI after it’s clear that you’re making your mortgage payments on time and that you have enough “equity” in your property to cover the loan if the lender has to foreclose. Nevertheless, many home buyers find their lenders to be frustratingly slow to wake up and cancel the coverage. The fact that they’ll have to spend time reviewing your file for no immediate gain and that the insurance company may also drag its feet are probably contributing factors.
If your lender refuses, or is slow to act on your PMI cancellation request, write polite but firm letters requesting action. Such letters are important not only to prod the lender into motion, but to serve as evidence if you’re later forced to take the lender to court. If court action becomes your best option, small claims court can be a good avenue, and you won’t need a lawyer to accompany you. For more information, including how to write polite but forceful demand letters, see Everybody’s Guide to Small Claims Court, by Ralph Warner (Nolo).Com
