Michael Holigan: Most homeowners pay not one but two types of insurance. One kind protects the home from disaster, the other protects the lender from a default on the loan. Craig and Kristen Gotthardt made a down payment of less than 20%, so every month they pay something called P.M.I.
Craig Gotthardt: Private mortgage insurance mainly covers the lender for the difference between your equity and what you're going to put down. My fear, or my problem with private mortgage insurance is that it has no value to the homeowner and adds no value to the house, doesn't pay down the loan, it's merely an insurance function.
M.H.: If you put 20% down on your home you don't have to pay P.M.I., but if you cannot afford that much you normally have to add P.M.I. to your mortgage payments. On a $100,000 home that will cost approximately $60 per month. But there are ways around private mortgage insurance. Some lenders will insure themselves and roll the premium in the interest rate. You might have to pay a «% more, but you can deduct the interest from your taxes. Another way around P.M.I. is to take out a second mortgage and apply that additional money to your down payment. The Gotthardt's found out that the private mortgage insurance could be dropped once their equity reached 20% of the appraised value of the home. In their case that happened when their house appreciated in value.
C.G.: Well, I think we had a good feeling that the house was priced way below market. And we basically had to wait the one year period that they require before you can get reappraisal and request that it be dropped because you do have the equity. In our case we came out with about 35% equity when they reappraised it.
M.H.: Few lenders are going to volunteer to drop the P.M.I.. If you feel like you have enough equity in your home, call and insist that they do a new appraisal. Be persistent.
Find out how much home you can afford - it's FREE!
Episode 37 1996 - 97 Season
| Master Makeover | Removing Tape after Painting | Flexible Stucco Siding | Removing Water Spots | Steel Tile Roofing | Private Mortgage Insurance |