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Have you been paying private
mortgage insurance for years? You may be closer than you think
to getting rid of that extra payment, which for many people
can amount to hundreds of dollars a year. Home improvements,
appreciation and extra payments can all shorten the time you
have to pay PMI. If you think you might be unnecessarily paying
private mortgage insurance, here's how to find out -- and how
to get the ball rolling to stop paying PMI if your home equity
is above 20 percent. Here are the questions to ask and the steps
to take.
Are you qualified?
The new law, plus new Freddie Mac and Fannie Mae guidelines
for existing loans, will increase the number of people who can
drop PMI. In general, the new rules make it easier to cancel
PMI once equity reaches 20 percent. Unfortunately, some types
of loans -- government-insured FHA and VA loans, for example
-- require mortgage insurance for the life of the loan.
Do you have enough equity?
Start out your equity calculation by checking how much equity
has built up under your original mortgage. Use this calculator
from the Mortgage Insurance Companies of America to see how
soon you'd pay down your mortgage to 78 percent of the purchase
price -- the point at which lenders are required to cancel PMI.
The calculator ignores appreciation, home improvements or extra
payments of principal. To make the calculator work, you'll need
to know your home's purchase price, the amount you put down,
the loan amount and the interest rate.
Has your home risen in value?
Your equity grows faster in times of rising home prices or when
you make improvements that increase your home's value. Every
dollar of appreciation shortens the time you have to pay PMI.
Have the homes in your neighborhood been appreciating? How much
extra will that new kitchen add to the price? Talk to neighbors,
local real estate agents and watch the home sale prices reported
in the local newspaper. Use this information to get an idea
of what your home is worth.
Have you made extra payments?
The other way to add equity is to make extra payments. Have
you made any additional payments and applied them to the mortgage
principal? If you're almost at 20 percent, a single extra payment
may be enough to put you over the top.
Do the math
Estimated value minus mortgage balance = equity.
Equity divided by estimated value = percentage of equity.
If you come up with a figure of .20 (20 percent) or greater,
and your estimate is accurate and there's a good chance you
can drop PMI and save.
Call your lender
Talk to someone at your lender's customer service department
to inquire about procedures for PMI removal. The formal request
will likely have to be in writing, but calling first might save
you some false steps later.
Write your lender
When you make your written request, ask your lender to provide,
in writing, the minimum amount the property will have to be
valued at to qualify to have the PMI dropped.
Article continued at http://www.bankrate.com/brm/news/mtg/19990729b.asp?prodtype=mtg
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