Private Mortgage Insurance Part (2)
The PMI coverage is supposed to drop off when the loan is paid down 20 percent. But recently, with lower interest rates, many homeowners refinance when they can show they have 20 percent equity. If home values are going up, that can happen quickly.
Also, on FHAinsured loans, the PMI doesn’t drop off, so the strategy is to get into the house with an FHA loan and then refinance to a conventional 80 percent or less as soon as possible. So how do you prove you have at least 20 percent equity? If you refinance, the appraiser’s value is the magic number.
But if you wait until you pay down the mortgage balance to 20 percent or more equity, it’ll take you a long time. For instance, if you have a $225,000 loan at 6 percent, your monthly principal and interest payment is $1,348.99. To pay down the mortgage by 20 percent ($45,000) to $180,000 giving you an 80 percent balance, would take you eleven and a half years. If your PMI payment is $93.75 a month, that’s $12,937.50 you would pay over eleven and a half years.
So, it’s in your best interests to either pay down the loan balance as quickly as you can or refinance as soon as possible. Ask the mortgage or title company for an amortization schedule at closing. This is a breakdown of how much of your payment goes to principle and how much to interest. Doubling up on principal payments is an inexpensive way to pay your loan down to where you don’t have to pay PMI
Related posts:
- What is Conventional Fixed-Rate Mortgages? The first type of loan is a fixed-rate mortgage with...
- What to do When There Is Negative Equity (a.k.a. Short Sales)? Sometimes the delinquent owners are unable to sell the property...
- The Most Effective Ways of Finding REOs (4) The deposit is usually a nominal amount ($100) that will...
