Bell & Schneider, PLC

Rising Home Values Can Save You Money

If you are one of the many home-owners who are paying for private mortgage insurance (PMI), you may be in luck. The booming real estate market may have made that insurance unnecessary for you.
PMI is required when you put less than 20 percent down on a house purchase. This insurance is designed to protect your lender should you walk away from the mortgage or go bankrupt. The insurance can cost from .5 to 1 percent of your loan – that's between $500-$1,000 per year for every $100,000 you borrow. Usually, you must make prompt mortgage payments for two years before your lender will even consider letting you drop PMI.

Before you approach the bank, do a little research yourself. Figure out how much your home is worth by asking realtors and comparing your house to recent sales in your neighborhood. Don't forget to add in the cost of major improvements or renovations. Then, calculate your equity in your home: the current value less your outstanding mortgage. If your equity is now more than 20 percent of the value of your home, you can ask your lender about canceling PMI.

The bank will want to get an official appraisal of your home, at your cost, to verify the increase in value. Then, it is up to them to remove PMI from your monthly payment, netting you up to a couple of thousand dollars per year.

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