My Experience with Private Mortgage Insurance (PMI) and Fighting the Bank
Like a good Thriver, I paid ahead on my home loan. When it got below 80%, I called the bank because I didn’t see the PMI come off my payment.
They told me it doesn’t come off automatically, but it will come off at a specific date (a year from now). That’s another $1K+. What a ripoff!
This is the story of my adventures in PMI and wrestling with the bank to save money on my house payment.
Understanding finances is a part of Thriving
A key to Thriving is becoming financially savvy, learning financial information and tasks, even though I find finances boring and not much fun.
Disclaimer: This is not financial or legal advice. It is a personal story of my own experience with my own bank. Do you own research and discuss options with your lender.
Saving on Private Mortgage Insurance (PMI)
What is Private Mortgage Insurance (PMI)? Private mortgage insurance is a type of insurance that covers mortgage lenders in the event a borrower defaults on a home loan. It is usually required if you are a home buyer that makes a down payment of less than 20% of the home’s purchase price. This PMI is funded by a third-party insurance company.
Reminder: PMI is designed to help the bank and not you.
PMI will usually be in effect until you pay down to 80% of the purchase price of your home loan. The PMI payments will usually last until a certain date.
I paid down to 80%. Why am I still paying PMI?
When the principal on my home loan got below 80%, I called the bank because I didn’t see the PMI come off my payment.
They told me it doesn’t come off automatically, but it will come off at a specific date (a year from now).
BUT I could submit an application and pay a fee to cancel PMI early. It would require a reappraisal and approval from the PMI insurance company. At first this sounded ridiculously counterproductive since an appraisal usually costs greater than $600. But this would be a mini-appraisal, which would cost about $200-$250, so with the fees I was still less than $400. The amount I would save by ending PMI early would still be well over $1000.
I was taking a risk: They could reject my application and I would lose my appraisal fee.
When we bought the house, the PMI agency initially rejected the loan application because my house is a weird layout and they claimed that they couldn’t find adequate “comps”. So involving the PMI agency again, and requiring an appraisal could backfire with it getting rejected. I was taking more than an average amount of risk.
If PMI was cancelled, I could lower my monthly house payment or it could be applied as principal payments, which was my original intent: to help pay off my house sooner.
I ordered the appraisal and submitted the fee.
They approved my application and did not even come out and look at the house. I ended up saving over $100 a month, which I then applied to principal going forward. Same house payment, just $100 going to principal to pay it off sooner.
Using the rising housing market value of your home to your advantage – to cancel PMI.
The value of my house went up 32% in eight years. In many other markets, the housing values went up more than that.
In some cases, you can apply to cancel the PMI payments since your house has already increased in value to offset the 20% that PMI covers. If your house has increased significantly in value, work with your bank and see if you can submit an application to discontinue PMI just based on the appraised value.
Conclusion: using some of these strategies may help you to decrease your monthly house payment or allow you to now apply the value that you were paying in PMI every month to your principal – to pay off your house, and your debt, faster.
As Shudra says:
- Eliminate your personal debt
- Plant trees
- Cultivate gardens
- Tend livestock
Disclaimer: This is not financial or legal advice. It is a personal story of my own experience with my own bank. Do you own research and discuss options with your lender.
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