PMI - Most Are Living With It!

If you are a homeowner, or looking to own a home, you are probably familiar with hearing the term PMI. Although you have heard it, do you really know what it means? When you understand what it is and how it affects you, you will have a greater understanding of your mortgage and how it affects your payment.

PMI stands for Private Mortgage insurance. This is an insurance that lenders require homeowners to have when their lending amount is 80% or greater than the home amount. This is basically a protection for lenders allowing people with smaller down payment from defaulting on their loan. When a person takes out a loan for most of the home value, it is seen as a bigger risk than those that have put down a larger down payment. The Private Mortgage Insurance helps recoup costs if, in fact, a person defaulted on their loan.

So What Happens When The 80% is Reached?

When a homeowner reaches 80% of their mortgage left to be paid, they can request that PMI be dropped. You will have to contact the lender directly to have this taken off. The Private mortgage insurance does not automatically come off until half way through the loan. For example, if you have a 30 year loan, it will not come off until 15 years later. Typically, you will have your home down to 80% by then.

Another factor consider when requesting the PMI be removed is that you have not been more than 30 days late in your mortgage the past year and not more than 60 days late in the past 2 years. The lender can deny your request if you show a pattern of being late on payment.
The lender also has the right to request proof that the home has not fallen below the purchase price. For example, if you bought a home for 100k, and its market value is currently 90k, they could deny the request. They may also request proof that there is no second mortgage.
You can also reach the 80% PMI cancellation quicker if your lender allows the current market value of the home. If a home has risen in market value, the lender may allow you to cancel the PMI for this reason. Although it is an option, a lender does not have to accept this offer. They have the right to deny this request; all you can do is try and see if they allow it.

The best thing to do when monitoring PMI is to look at it yearly. By law, the lender has to inform the payee yearly of the PMI. In order to stay consistent in reaching the goals, you should work out a plan ahead of time and be prepared to answer any questions the lender may have and provide the documents they ask for in the time frame allotted.

Removing Private Mortgage Insurance can save many people thousands yearly. It is one of those items that is often overlooked.

Learn more about the Anchorage Alaska Real Estate market or search Anchorage AK Real Estate on Ryan Tollefsen's Alaska Real Estate web site.