March 11th, 2019 12:36 PM by BILL WILBANKS
Now for the good news you may not know. 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
have risen considerably in the last 5 to 6 years. And that could have earned you 20 percent
equity even if you hadn't paid down much principal. If you put 5% down at purchase, and if you assume an appreciation rate of only 3% along with the normal 30 year loan amortization you could expect to reach that 20% equity level after purchase in 6 years. Your rate of appreciation can be more or less of course.
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. You will
certainly need to verify that you have at least 20 percent equity, that you have paid your payments on time and that
values are not declining in the area. They will let you know their value determination process. Be sure to check with them before spending your time or money.