If you purchased a home in recent years and put less than 20% down, it is almost a certainty that your monthly mortgage payment includes Private Mortgage Insurance. This is not insurance for you, but for the lender in case you default on the loan. I received a question this week from a reader on this topic and did some digging to find out the latest on PMI. In the case of this one reader, they are currently paying more than $400 monthly for PMI on a $400,000 mortgage. PMI typically adds 1.35% to your annual interest rate.  

Many people mistakenly believe that once their home goes up in value enough, their lender will automatically drop the PMI. This almost never happens, and after the 2008 real estate collapse don't expect your lender to be too open to considering it. There was a time when you could simply contact your lender with proof that your home had appreciated enough so that the current loan balance was less than 78% of your home's  value (and the PMI would be dropped).

Today, lenders will use a myriad of excuses to avoid removing the PMI. For most borrowers, the only way to get rid of it (without waiting years until to pay down your balance to 78% of the original purchase price), is to refinance. Many people with PMI don't realize that even if without much of a reduction, getting rid of PMI can be justification for a Refi on its own. In order to avoid PMI on the new loan, your appraisal must be high enough so that your new loan is no more than 80% of the current value (another option that is often used to get rid of PMI is the 80% first mortgage with a 10% second, but excellent credit is needed for a 'piggyback' second).

  Helping you make the most of God's money!  

  James L. Paris 
Editor-In-Chief ChristianMoney.com
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