We received an awesome late Christmas gift in the mail today. It was a letter informing us that our PMI (Private Mortgage Insurance) has been canceled. PMI insurance is insurance on the mortgage that is for the good of only the bank. It covers them in the case you default on your loan. If you are not putting 20% down on your home when you purchase it, you will need to pay this insurance that amounts an average of $67 per $100,000.00. We are still not sure as to why the bank spontaneously canceled our PMI as this is rare. All we can guess is that the mortgage had been transferred to a new payment processing company. You usually need to request that your PMI be dropped.
No frugal person should be paying an insurance that does not benefit them. If you have been paying on your mortgage for five to seven years and made a decent down payment when you purchased your house, there is a good chance that you have paid down 20% of your mortgage and do not need to pay PMI.
First you need to call your bank or read your mortgage statement to see how much you owe versus how much your original mortgage was written for. Should you deduce that you own 20% or more in equity you must call your bank and asked that the PMI be cancelled. Because of the Homeowners Protection act of 1998 you are entitled to automatic PMI cancellation when you reach 78% loan value.
Paying down your mortgage isn’t the only way to earn PMI cancellation. Your home equity can increase due to appreciation or remodels. In this case, you would have your home appraised to ascertain the value versus what you owe. You can also refinance, getting an 80/20 loan so that neither bank will have more than 80% equity in the home, making the PMI unnecessary.
~Andrea Hermitt writes for parenting (specifically teens), the home blog, and also the frugal blog, and homeschooling at families.com.
Read:
Private Mortgage Insurance (PMI)–What If Your Home Value Has Increased?
The Importance of Saving for a Down Payment
Mortgage Insurance and Your Money