Mortgage Insurance

Recently purchase a home? Have you gained some equity in your mortgage from valuations or from payments? It may be time to dump the PMI that ugly spot on your home loan statement. PMI is private mortgage insurance, which is the added premium built into the mortgage payment insuring the lender against payment default. FHA loans have required PMI upfront and ongoing, and these costs can add up over time. So how can I scrub this charge from my life? Removing this charge can be as simple as having your home appraised.

Mortgage Insurance Tax Write Offs 

Before 2008 home owners were able to write the mortgage insurance premium off, thus saving money on their taxes. After 2008 the insurance premium was just part of paying your loan without any tax advantage. So there is an even larger advantage to putting 20% down on your home, which avoids PMI altogether.

Can PMI hurt your DTI? 

The answer is yes PMI must be calculated into your monthly obligation for expenses. It may not be truly debt but it does count against you when calculating your debt to income ratio. For borrowers you might as well build in the PMI figure into your DTI it will count dollar for dollar against your income the same as a debt payment would.

Equity can only help

As a borrower you don’t always need to have 20% down to remove PMI. If the house appraises high enough showing you have 10% equity, it is possible to add Lender Paid Mortgage Insurance. It is a creative way to eliminate PMI, but in reality it moves the mortgage insurance to the front of the loan vs spread out over time. I would not recommend this method unless the home seller or mortgage lender are picking up the tab.

The way that Lender Paid Mortgage Insurance gets done is if the property must have a strong appraisal. It must have more value than it would be to refinance down the road.

PMI and  Refinancing

For a time homeowners had the luxury of obtaining a mortgage when 30-year mortgage interest rates were sub 3.75%. Lucky you, you really don’t have a need to refinance to get a better rate. If that fixed mortgage has PMI included and your working with a FHA loan you should at least take a closer look .

FHA mortgage rules changed in 2014. Now to rid your PMI from your FHA loan your best bet is to refinance your mortgage loan with 10-20% equity. You can submit a petition to the lender to remove the mortgage insurance after 10 years. But, refinancing looks like the better choice.

PMI for conventional loans, you will be able to submit a petition for removal, but only after a minimum of 24 months of on time mortgage payments. You have options using a home loan with lender paid mortgage insurance, and it can be less expensive than the same you would pay in MI between it the first 24 months. PMI would make be beneficial as long as the rate is equal same, or less.

It is important for the home Borrower to have a good understanding of the value of their home. To refinance your house you will need an appraisal and this is at the borrowers expense. You want to save money with the refinance, but you sure don’t want to be out a $500 appraisal fee for nothing.

The Summary 

PMI can be avoided but you really should speak with a mortgage loan professional who can help guide you and show you your options. No one wants to pay PMI, but with rates as low as they are historically, and home values down a little it is easier to look the other way.