PMI…PMI…PMI. What’s all this talk about the mysterious PMI anyway?! Well, PMI stands for Private Mortgage Insurance
and is simply a coverage homeowners must pay for if they owe their mortgage holder more than 80% of their homes market value. Usually, insurance is something we purchase which protects us
. PMI is just the opposite. This insurance is used to protect the lender if you happen to default on your mortgage. Most homeowners are paying about $75.00 per month for this insurance, but many pay up to $150.00. If you initially purchased your home with 20% down, it is likely that you are not paying for PMI now. But if you are, eliminating this cost from your monthly mortgage amount is only a few simple steps away.
Most folks find that after only two years in their homes (if you have NOT refinanced), the market value of the residence has risen enough to allow them to drop the Private Mortgage Insurance. Even though you may owe more than 80% of your actual loan amount, PMI is based on the market value of your home, not the purchase price. You will NEVER be informed by your lender that you have reached this plateau (they are making money on you!) so you will need to keep track. PMI payments can actually continue for the entire 30 years of your mortgage (and many do) if you do not opt to remove it. A substantial amount of money can be needlessly spent (up-wards to $30,000.00 over the life of the loan!) without being informed as a consumer.
So, how do you go about ridding yourself of this pesky PMI? The good news is, it’s a fairly easy process. The bad news is, it will cost you a little out of your pocket. In order for your lender to recognize that you owe less than 80% of the market value on your home, an appraisal must be performed and then submitted to the lender. The average appraisal will run you anywhere from $250 to $300. Though it may sound like an annoying chunk of change, it will end up saving you about $1000.00 per year or more. It’s definitely a move worth the cost.