Dropping PMI vs. Refi?

[Anonymous]

Has anyone else had any luck asking a mortgage co. to drop your pmi after you've paid on time for two years unconditionally? We have a 6% mortgage and would save $125 a month if we didn't have to pay it anymore. I've read to attempt to after two year, but I'm pretty sure my home's value vs. amount left are not at the rate they're "supposed to be." Refi might be an option too, but just wondering if anyone has been successful bc of our good fixed rate. We plan to be in our house for a while. TIA!

[Anonymous]

Than PMI always puzzled me.  Wouldn't the mortgage be more affordable and less likely to go into default if there was no PMI payment???? 

[Anonymous]

And if the PMI protects the lender, why doesn't the lender pay it?

[ShanetheMortgageMan]

Lenders can pay for PMI, it's called "LPMI" (lender paid mortgage insurance)... it's where a higher mortgage interest rate is given to the borrower in trade for the lender paying the mortgage insurance.  It usually results in a lower overall payment than BPMI (borrower paid mortgage insurance), which is the more common form of PMI.  Realize that with LPMI, your interest rate stays higher the entire term of the mortgage... whereas with BPMI, it will fall off at some point.

PMI is an insurance policy the borrower needs to take out that protects the lender in case you default.  Sure, having a higher payment is less likely for the borrower to make the payments... but that's something the borrower should've thought about when they took out the mortgage.  Lenders are in the business of making money, if they don't have an insurance policy in case of default, and the borrower defaults, they are out more money than if PMI policy was in place.  Without PMI, financing over 80% LTV or FHA loans wouldn't be possible.

Since borrowers who have less than 20% equity have a higher liklihood of defaulting, the PMI policy enables those individuals to still purchase a home.  One way of avoiding PMI is taking a 1st mortgage to 80%, and the remaining amount financed with a 2nd mortgage... called a "piggyback" mortgage.

mnmama you can ask your lender if they will drop the PMI, it never hurts to ask, but it's unlikely that they'll drop it unless you have met the requirements for removing PMI.  You might ask them if they can increase your interest rate a little so they will pay the PMI (called LPMI, explained in the beginning of my post).

Message Edited by ShanetheMortgageMan on 10-26-2007 02:09 AM

[Anonymous]

I'm not positive, but can't you do a reappraisal to calculate a new LTV %? You might be closer to 80% than you think if your home's value has increased

[Anonymous]

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@Anonymous wrote:
Has anyone else had any luck asking a mortgage co. to drop your pmi after you've paid on time for two years unconditionally? We have a 6% mortgage and would save $125 a month if we didn't have to pay it anymore. I've read to attempt to after two year, but I'm pretty sure my home's value vs. amount left are not at the rate they're "supposed to be." Refi might be an option too, but just wondering if anyone has been successful bc of our good fixed rate. We plan to be in our house for a while. TIA!

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When my mortgage was with WAMU, I found instructions on their website to cancel my PMI. Check with your lender for their process.

How do I request cancellation of Private Mortgage Insurance (PMI)?
In order for us to consider cancellation of your Private Mortgage Insurance (PMI), you will need to submit your request in writing to the address below:

Washington Mutual
PMI Cancellation Requests
PO Box 3139
Milwaukee, WI 53201-3139

Once your request is received, we will review your account and advise you of the requirements.

[MidnightVoice]

I had to have a survey done to prove I had 20% of the current value as equity.

[ShanetheMortgageMan]

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hdj wrote:
I'm not positive, but can't you do a reappraisal to calculate a new LTV %? You might be closer to 80% than you think if your home's value has increased

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Yes you may, but like another poster said ask your PMI company for their exact requirements.  If you don't quite have 20% equity, but have more equity than when you originally obtained PMI, you might be eligible for a reduction of the PMI amount.