When will the Private Mortgage Insurance (PMI) drop off of my home loan? A good friend of mine called me today to ask about a loan he had on a property in Florida. He financed the house with a 95% loan, but his value keeps dropping; probably below what he still owes for the house today. His question was, “At what point will my mortgage insurance drop off?”
Luckily for him, the mortgage insurance (MI) question really has to do with what you buy the home for, not what it is worth on the market today. PMI is an insurance policy to protect the lender should you default on your loan. If you were to quit making your payments and the house was foreclosed on, the MI Company would cover a certain percentage of the loss for the lender if they encountered trouble selling the property.
For you as the homeowner, once you pay down to 78% of the original purchase price (or appraised value whichever was lower at the time) then the mortgage insurance is required by federal law to drop off of your loan. In his case, he is paying about $280 per month in mortgage insurance. The MI will drop off when he pays about $3,000 additional to the principal on his loan. Since he has the cash available, it is better to pay $3,000 now on his loan, and eliminate the MI now, because that will save him $3,360 over the next 12 months.
If you have a question, send me an email: richard.swan@migonline.com and I will try to answer your question. Remember the First Time Homebuyer’s Tax Credit and the Long Time Homeowner’s Tax Credit end on April 30th. Make sure you have a contract to purchase by that time.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
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