Eliminating Private Mortgage Insurance (PMI) and

Considering PMI Alternatives Like the New HARP Program 

For loans made after July 1999, lenders are required by federal law to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of your purchase price — not when you achieve 22 percent equity, which will happen much more quickly with rising property values. (Certain "higher risk" loans are excluded.) But you have the right to cancel PMI (for loans made after July 1999) once your equity reaches 20 percent of value, regardless of the original price.            

Keep track of your principal payments.  Also keep track of what other homes are selling for in your neighborhood.  If your loan is under five years old, chances are you haven't paid down much principal — it's been mostly interest.  Property values in many parts of the country had gone through the roof two to four years ago.  And that could have earned you 20 percent equity even if you hadn't paid down much principal. In the most recent couple years the reverse may have been true in your market. Values declined in many areas.

When you think you've reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments!  You will need to notify your mortgage lender that you want to cancel PMI payments and they will advise you of their specific requirements, but you'll certainly need to submit proof that you have at least 20 percent equity and that values are not declining in the area.  A state certified appraisal on the appropriate form (URAR- 1004 uniform residential appraisal report for single family homes) is the most likely requirement — and most lenders require one before they'll consider your request to cancel PMI. But check with them before spending your time or money today. Many are not considering such requests in this market today.

When you Refinance your current mortgage...

The appraisal that is completed on the new loan will establish the value at that time and the new mortgage amount will determine whether or not your new loan exceeds 80% financing. Exceeding 80% is the trigger that would require PMI again generally speaking. If it's 80% LTV or below on your owner-occupied or second home you are in the clear. Losing the PMI portion of the old payment could be another advantage of refinancing the current loan.

There is an alternative available called the Home Affordable Refinance Program known as "HARP", available to current Fannie and Freddie held mortgage borrowers and the availabilty of that Federal program has just been extended to loans funded no later than June 30, 2011. Most lenders allow up to 105% of the appraised value today without PMI, though the program authorizes up to 125%. This makes refinancing possible today for many that would otherwise not be eligible on a standard conventional basis with or without PMI and without MI on an FHA loan. You can see all the details by clicking on this link to HARP ELIGIBILTY .

Lender Paid Mortgage Insurance (LPMI) Option or Self-Insurance

We will also look at this option during our review whether you are applying on a purchase or refinance. You may elect in many cases to have the lender effectively self-insure, at a premium to the rate, rather than add the standard PMI premium/monthly payment. This can be used up to 90% purchase and no cash out refinancing in Florida's current declining value market. How it works is very simple. Instead of offering the traditional loan rate and collecting a separate PMI premium each month in your payment, they offer a slightly higher rate for the life of the loan to cover their risk and waive the PMI requirement and save an additional loan review by the PMI company. We can help lay this out for you and relay on to you the plus and minus of each. An LPMI loan can offer a more attractive total monthly payment than a PMI type loan as one example on LTV's of 90% or below.