If you have a mortgage with Private Mortgage Insurance (PMI) it's important to know when you can stop making premium payments and your rights for having it canceled.
Money Girl
176 MG How to Cancel Private Mortgage Insurance (PMI)
Hey, Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them. Where you left them. Investing involves risk, including risk of loss. Fidelity brokerage services LLC member NYSE SIPC. Hear that? Pumpkin. That's fall calling. And the pumpkin spice latte is back at Starbucks. From that first sweater to late autumn weather. It's all a fall in just one sip. Order ahead on the Starbucks app. Hi, everyone, and welcome back to Money Girls Quick and Dirty Tips for Richard Life. I'm Laura Adams. Private Mortgage Insurance, or PMI, is a special kind of insurance that lenders may require you to purchase when you take out a mortgage. It's certainly not the most exciting type of insurance you'll ever buy because it doesn't ensure you against anything. It only ensures your lender. And this show will cover why you have to buy it and how to get rid of it as soon as you can. Private Mortgage Insurance is just one of the expenses that normally go along with getting loaned by a home. No one likes having an extra expense tacked onto their monthly mortgage payment, but it's a requirement when your loan to value ratio or LTV is 80% or more. In other words, when you borrow more than 80% of the value of a property, you can expect to pay PMI. This rule even applies to borrowers with squeaky clean credit. For example, if you buy a house for $200,000 and make anything less than a 20% or $40,000 down payment, your mortgage payment will be increased by a monthly PMI premium. I'll tell you how much that could be in just a moment. Once you pay the loan down to a certain balance, you have rights for getting rid of the policy, so you don't have to continue making PMI payments forever. The reason lenders make you pay for PMI is because they consider any loan with less than a 20% down payment somewhat risky, so they require you to mitigate their risk by covering the cost of PMI on their behalf. PMI wasn't enough to avert our mortgage crisis because there simply wasn't enough insurance to go around. However, PMI does give the lender some level of protection against loss when a borrower doesn't pay up. The cost of PMI varies depending on the type and term of the mortgage you have. It could range from one half to one percent of the loan amount per year. In the case of a $200,000 house where you put 10% or $20,000 down and financed $180,000, your PMI premium could cost anywhere from $75 to $150 per month. Private mortgage insurance is now a tax-deductible expense for mortgages issued after 2006. However, there's an income restriction to qualify for the deduction. Your adjusted gross income can't exceed $109,000 or $54,500 if you're married and file a separate tax return. How much PMI you pay during the year is listed on form 1098, the annual statement you receive from your lender. I mentioned that once you pay down a mortgage to a certain balance, you can get rid of PMI. The regulations that lenders have to follow regarding PMI cancellations for primary residences are part of the Homeowners Protection Act of 1998. Before this act, it was easy for consumers to get ripped off when it came to PMI. If you weren't the type to keep a close eye on your loan-to-value ratio, you could forget about it and overpay premiums for years, and some people simply didn't know that they could cancel PMI. According to the Homeowners Protection Act, in most circumstances, lenders must automatically cancel PMI when you pay down your mortgage to 78% of the value of your home and/or current on payments. Even though this rule applies to private loans that were issued after July 1999 only, lenders have the option to extend the provision to older loans. You might wonder about what would happen in a case where you've made payments on a mortgage for a long time, but still haven't reached a balance that 78% or less of your home's value. Unfortunately, that's a common situation now for people who have a home that's declined in value. But this may make you feel better. The Homeowners Protection Act says that PMI must still be canceled when you reach the midpoint of your loan, regardless of your loan-to-value ratio. For example, if you have a 30-year mortgage, your lender must cancel your PMI after 15 years, as long as you're current on your payments. You have the right to be proactive and request cancellation of PMI once you pay down your mortgage to an 80% loan-to-value ratio. The lender will require you to pay for a property appraisal to find out the current value of the property. However, be aware that your lender can still deny your request for PMI cancellation in certain situations. I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then Ixcel is a right for your family. Ixcel is an online learning program for kids covering math, language arts, science, and social studies. Ixcel has interactive practice problems for topics from pre-K to 12th grade, and everything is organized by grade and subject. As kids practice, they get positive feedback, awards, and explanations for wrong answers. Ixcel figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems, and learning games, too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning, get Ixcel now, and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at Ixcel.com/moneygirl. Visit Ixcel.com/moneygirl to get the most effective learning program out there at the best price. Hear that? Pumpkin. That's fall calling, and the pumpkin spice latte is back at Starbucks from that first sweater to late autumn weather. It's all a fall in just one sip. Order ahead on the Starbucks app. At Credit Union of Colorado, banking doesn't have to be like this. Big national banker here to let you know we are increasing fees. Again, now some people will say they are hidden fees, and if I had my choice, I'd hide them. But I guess that's not legal. So for now, please reference line 572 on page 36 for all new fees this month. At Credit Union of Colorado, we have better interest rates, seamless mobile banking, and no hidden fees. Ever. Credit Union of Colorado. Honestly, good. Learn more at honestlygood.org federally insured by NCUA. You'll probably be denied if you have a lien on the property, made lay payments over the past two years, or have a high risk loan. You might be surprised to know that beginning in 2000, a mortgage over $252,700 is considered a non-conforming mortgage. That fact alone gives a lender the ability to classify it as high risk. If you have a mortgage over that amount, your lender may require you to continue making PMI payments until the loan is paid down to the mandatory 78% loan-to-value ratio. If you're like me, the thought of paying unnecessary PMI premiums makes you want to stick sharp pencils in your eyes. So here are some situations to watch out for where you might qualify for a PMI cancellation without knowing it. Number one, if the value of your home has risen, even though we've had a huge market decline, many homes may still be up in value relative to their original purchase price, which could lower your loan-to-value ratio. Number two, if you remodeled your home, home improvements increase the market value of your home, which can get you closer to the 80% loan-to-value requirement. And three, if you paid down your mortgage, if you sent extra monthly payments or made a lump sum payment on your principal balance, having a reduced loan balance may have lowered your loan-to-value ratio. Here's a quick and dirty tip, multiply your current mortgage balance by 1.25. That's the minimum amount your property must be worth in order for you to have an 80% loan-to-value ratio. If you believe your property could appraise for that amount, put down any sharp objects and contact your lender to request a PMI cancellation right away. Learn how easy it is to get out of debt and stay out of debt for good, with MoneyGirl's 10 Steps to a Debt-Free Life. It's available as an audiobook at audible.com or as a short e-book in the Amazon Kindle Store and the Sony Reader Store. When you buy a Kindle book, you can also read it on your PC, Mac, smartphone, iPhone, or iPad. I'm glad you're listening. Cha-ching! That's all for now, courtesy of MoneyGirl, your guide to a richer line. At Credit Union of Colorado, banking doesn't have to be like this. Big National Banker here, just saying we'd like to apologize to you for that thing we did, was it's selling your information, cancelling your personal loan, who can say, that's for the lawyers to figure out. So just know, it's not going to happen again, until it does, again. At Credit Union of Colorado, we have better interest rates and seamless mobile banking. All while having a heart, Credit Union of Colorado. Honestly, good. Learn more at honestlygood.org, federally insured by NCUA. When you need meal time inspiration, it's worth shopping king supers for thousands of appetizing ingredients that inspire countless mouth-watering meals. And no matter what tasty choice you make, you'll enjoy our everyday low prices, plus extra ways to save, like digital coupons worth over $600 each week, and up to $1 off per gallon at the pump with points. So you can get big flavors and big savings, king supers, fresh for everyone, fuel restrictions apply.