Private Mortgage Insurance (PMI)–What If Your Home Value Has Increased?

Most home buyers today are able to secure a mortgage loan with is little as 3-5 percent of the home value as a down payment. This has been a nice way for the average family to get into a home without waiting for years to save up the 20 percent down payments our parents had to scrimp and save years for in order to buy their first homes. One of the reasons lenders have been able to allow home buyers to secure loans with less then 20 percent down has been to add Private Mortgage Insurance (PMI).

Loans secured after July 29, 1999 have added protection with automatic cancellation or termination of the PMI once the balance is below 80 percent of the original value. The Homeowners Protection Act (HPA) of 1998 establishes laws for home buyers with loans made after July 1999. There are methods home buyers have in order to cancel or terminate the PMI on loans made before the HPA was effective. Once the loan amount is under the 80 percent borrowers can take some steps to remove the PMI on loans made before July 1999.

But what if the value of your home has dramatically increased and this increased equity means home buyers now have well over the 20 percent equity needed in order to cancel or terminate the PMI even when the original loan does not reflect payments have reached the time when PMI must be removed?

The majority of the payments made on a home loan during the first few years are finance charges and interest. It can take as long as 10 to 15 years for home buyers to pay down a loan and reach 80 percent of the loan value. If the home prices and real estate values in an area are increasing quickly, the property value of your home may have increased to a point where the 20 percent required equity mark has been reached long before your original loan reflects it. Property values might also increase if you have made major home improvements or additions.

If your home value has increased, your lender might consider canceling the PMI on your mortgage. The HPA laws don’t require mortgage servicers to make any considerate to the current property value. But, many will knowing it is possible you could refinance with the new higher equity values with relative ease. Home buyers may want to contact their lenders to see if they are willing to consider the increased real estate values and equity in order to terminate the requirements to pay PMI. It is worth the effort and may offer monthly savings without the fees and other costs associated with refinancing.

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