Home Values Have Gone Up...Can You Drop Your Mortgage Insurance?
Everyone is looking for ways to save money these days. With rampant inflation and soaring energy costs, everything is costing more than it was a year ago. The good news is that, in most areas, home values rose along with everything else, and many homeowners have unrealized wealth sitting in their property. While it may not be the right time to sell and take the appreciation gain, there is another way to capitalize on the increase in home values.
Often home buyers put less than 20% down on a new home. In this case, these borrowers were required to have private mortgage insurance (PMI). PMI is not homeowner’s insurance, that covers fire, theft, and other damage to the property. PMI is insurance that protects the lender in the event that the borrower defaults on the loan.
On average, private mortgage insurance premiums range from about 0.25% to as much as 2.25% of the loan amount. The cost is dependent on two factors: the amount of the loan and the credit worthiness of the borrower. This additional fee is applied to the monthly payment. Yet, with rising home values, many borrowers may now have passed the 80% threshold and can ask to remove the PMI.
The process for removing PMI varies from lender to lender but most will require a formal appraisal before removing the cost. FHA and VA have their own rules as well. But in this economy, removing an unnecessary housing cost can save many homeowners hundreds of dollars each month.