Can you remove the PMI from your mortgage?
Julie Garton-Good, GRI, DREI
You've been making payments on your mortgage for several years and you'd love to have the private mortgage insurance dropped that was initially part of the loan. After all, it's adding about $30 extra to your monthly payment. Is it possible to remove it? The answer: a strong "maybe."
Private mortgage insurance (PMI) insures the lender against the borrower's default, usually on the top 20% of the loan. It is used in lieu of large down payments so that the lender is protected against the borrower's default. PMI can only be removed at the lender's discretion. While guidelines vary from lender to lender, here are the generic guidelines many lenders use:
- The borrower must make a formal request in writing to the lender;
- A fee appraisal must show at least 20% equity in the property;
- Payments must have
been made on time (the past twelve months are the most critical);
- PMI is removed on a case-by-case basis .
A recent consumer class-action suit, however, doesn't bode well in removing PMI from loans in the future. The court hearing the case moved in favor of the lender, stating that since the lender required it as a condition of approving the loan (as well as part of the qualifying paperwork), the lender would have the latitude to keep it on the loan.
This stresses the need for home buyers to ask (before the loan is taken out) "if I take PMI, how can it be removed?" If the borrower doesn't like the removal guidelines at the time of loan application, it's doubtful that they will improve. At least the consumer would be able to explore other options before getting saddled with private mortgage insurance that isn't likely to be removed from the loan.