Check to See if You Really Need Private Mortgage Insurance (PMI)

PMI, otherwise known as private mortgage insurance, is protection to the bank in case you default. It is required when the starting equity in your home is less than 20% or if you have blemishes on your credit report. The cost of PMI is approximately $250.00 to $560.00 or more annually for every $100,000.00 borrowed on the mortgage. Many homeowners with conventional loans are paying costly PMI unnecessarily. This is most likely if you are pre-paying regularly on your mortgage; you have never calculated when you will be able to stop paying PMI; and you live in an area where property values have risen recently. Typically, lenders do not tell you when you are eligible to discontinue PMI. To determine if you are eligible to ask for elimination of PMI on your conventional loan, calculate your equity by figuring out your mortgage balance. You can get the exact balance of your mortgage from your lender. Subtract that number from today’s value of your home. You can probably use recent sales in your neighborhood as a benchmark, or, ask a realtor to give you an estimate of your home’s value. If you feel that the equity in your residence exceeds 20% of the present day value, you probably will not have to pay PMI. If that is the case, write your lender and ask to have PMI eliminated.