Private Mortgage Just Might Be Mortgage Insurance without End

By Debbie Wilson
Loan Page Columnist

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If you're thinking about lowering your monthly payments by getting rid of your private mortgage insurance, doing so may not be so easy. There are a few obstacles that just might prevent you from easily removing that mortgage.

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What Is Private Mortgage Insurance?

If you're a home buyer looking to secure a new home loan, chances are if you put down less than 20%, you'll be required to obtain private mortgage insurance (PMI). Why? Well, lenders look to protect themselves in case you default on the loan, either through PMI if you put down less than 20% or a higher down payment.

Private mortgage insurance allows lenders to have peace of mind in offering new home loans since they have greater backing. However, once lenders help you secure private mortgage insurance, they are often not very willing to remove the coverage. But, there are laws that do help protect your interests.

When Can Private Mortgage Insurance Be Removed?

According to the Federal Homeowners Protection Act, lenders must automatically cancel private mortgage insurance policies once you've paid off 22% of your original loan. If you are unable to wait that long, you can request, in writing, that your private mortgage insurance be terminated once your equity reaches 20%. And with the rapid rate of home appreciation today, that might not take long to accomplish.

Pitfalls of Private Mortgage Insurance

While there are some definite advantages of putting less money down--more cash on hand, getting into your new home sooner, or buying a larger home than you might have originally afforded, there are also some serious pitfalls. First of all, in order to get your private mortgage insurance removed, you need to get your home appraised to verify its value. This can cost a considerable amount of money and there are no guarantees. Secondly, some private mortgage insurance policies have two-year waiting periods before they can be removed, regardless of the equity you've built up. Finally, private mortgage insurance can saddle you with extra monthly expenses that might be put to better use elsewhere.

So before you jump into your next new home loan, consider your choices, research your choices carefully, and make sure you can have your PMI removed easily, thus side-stepping the private mortgage insurance financial nightmare.

About the Author Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.

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