PMI Cancelled! W00t!

Appropriately enough, the day before Independence Day we got a letter from the bank that they had removed the PMI from our home loan!

This was the culmination of a bit of persistence, work, and effort on our part, but it'll be worth it: The PMI payments on our mortgage were around $88 per month- that's $1000 per year!

For those who don't know: If, when one buys a home, they don't have the 20% down payment (and don't qualify for any other "special" financing) the bank typically assesses Private Mortgage Insurance, which is basically their way of protecting themselves against default since you only put, say, 10% down on the mortgage loan.

Normally, PMI goes away automatically when the Loan to Value ratio of the home falls under ~78%, indicating there's 20% equity in the house (the same as if you'd paid 20% down initially).

However, after doing some research I found it could be cancelled before actually paying down the mortgage that far, IF the house appraised for enough such that the 78% LTV was achieved, AND we had a 3 year history of perfect payments, which we did.

We had to fork out for an appraisal out of pocket ($450), which was a bit of a roll of the dice, but we'd bought our home short sale and had made a lot of improvements to it, so it was a gamble we figured we had good odds on. And we did- the appraisal came in well over what we needed, and the PMI was cancelled.

Congrats.

Well done! Paying attention to all the details is good for the bottom line.

Some banks will allow you to do a 10/10/80 specifically to avoid PMI. That's 10% down, 10% small loan, 80% traditional mortgage. Whether it makes financial sense varies wildly, based on the home you're buying, credit rating, etc

Someday.....

I know were are close. I think by the end of the year we will be rid of ours.

I know I celebrated when I got rid of the useless PMI.

PMI is a total scam, IMHO. So were did all that money go in the housing market crash? Why does the lender need to be insured? They own the HOUSE! If the house isn't worth the value they lent for it, that's their own damn fault! The other thing that pisses me off about it is the fact that once you reach 80% loan to value, you can get the PMI removed... if you ask. Otherwise they will rake you over the coals until 78%.

/rant off.

Now, don't change the amount you are sending in and have the extra $88 or $1,000 per year applied directly to your principle. You should then see your house paid off 5-8 years quicker!

Any extra dollars thrown at the loan principle in the early years will have a much greater affect on paying off the loan than extra dollars thrown at it in the later years.

In reply to RossD:

Yeah, there are a whole lot of different conditions under which PMI can be removed. I, too, bitched about it, but at the end of the day, it let us get into a home and keep cash free. We figured since it was a short sale we'd get above 78% LTV quickly, so then it was just a matter of waiting out the arbitrary period of proven payment history.

Ironically (I guess) we bought the place as a short sale because the P/O got underwater in the housing bubble and the bank took a huge loss on the place. Banks aren't in the home-selling biz, they're in the money-lending biz, so when they get stuck with a house in foreclosure they want to offload it as quickly as possible- usually less than FMV. Hence why they want that 20% equity, or, failing that, insurance.

John Welsh wrote: Now, don't change the amount you are sending in and have the extra $88 or $1,000 per year applied directly to your principle. You should see your house then paid off 5-8 years quicker! Any extra dollars thrown at the loan principle in the early years will have a much greater affect on paying off the loan than extra dollars thrown at it in the later years.

Agreed...however, do I want to stick $88 per month into paying down a mortgage at 4.5% (that's tax deductible), or invest it? This is my big quandary whenever we have extra cash. All of our existing debt is at low rates, and is tax deductible. So paying down debt is essentially like making 3 or 3.5% on your money. Pretty terrible returns.

In reply to volvoclearinghouse:

It is a quandary. Much depends on your personal situation. As you say, paying the mortgage offers 3 to 3.5% saving for sure and putting it into the market MIGHT bring more or bring less. It's all the risk game.

In reply to John Welsh :

Right. And, just as paying down the mortgage principle earlier on shortens the mortgage more than paying it down later, so is money invested today worth more than money invested tomorrow. That's the power of compounding.

We're in a very good spot (knock on wood) in that I'm rapidly approaching the point at which my yearly income equals what we paid for our house. This is mostly because we bought very conservatively, not because I make boatloads of money or anything. Still, our monthly mortgage payment is less than I make in a week, after taxes. And, if we're to believe the appraisal, the house is now worth double what we paid for it 3-1/2 years ago.

Oh, that's another thing- WTF is it with appraisers? We had the place appraised for a home equity line of credit, and the appraisal for that came in a full 30% less than the appraisal to have PMI removed.

PMI wouldn't be SO bad if it worked for you. But it doesn't, it works for the mortgage holder, no benefit to you.

volvoclearinghouse wrote: Oh, that's another thing- WTF is it with appraisers? We had the place appraised for a home equity line of credit, and the appraisal for that came in a full 30% less than the appraisal to have PMI removed.

It's basically subjective guess work based on comps in your area. If there aren't any comps similar enough to your place, or there are very few to base a decision on, it's even more of a crap shoot.

In reply to STM317:

We do have a...unique property. The PMI appraiser also went around and determined the number of "garage spaces" and "off street parking spaces" simply by counting how many cars I had stashed in various barns and how many cars we had parked outside. Needless to say, this gave a very ehem optimistic figure.

spitfirebill wrote: PMI wouldn't be SO bad if it worked for you. But it doesn't, it works for the mortgage holder, no benefit to you.

Well, the benefit to the borrower is, you get to borrow 90% of the purchase price, instead of 80%. So, if you have $20,000 in cash, but not $40,000, you can buy a $200,000 house, instead of a $100,000 house.

spitfirebill wrote: PMI wouldn't be SO bad if it worked for you. But it doesn't, it works for the mortgage holder, no benefit to you.

Except you wouldn't have got the loan without it. If you think it is such a scam then avoid it entirely-- just save enough down payment before you buy a home. And, if it makes you feel any better, some lender probably got screwed when you buy a house as a short sale.

I had PMI once-- in my case the PMI was automatically canceled when I paid down the loan enough, though maybe not all policies work that way or maybe they don't work that way any more.

In reply to Basil Exposition:

Exactly. My brother has been talking about buying a home, and lamenting that he's probably going to have to get PMI. I told him, well, you can either a) not buy a home, or b) save some more money. Those are your other options.

Part of my ordeal with the bank was that, when I'd originally called them, I had intended to simply pay down the mortgage (I had some cash freed up) to below the 78% LTV on the original loan amount. They wouldn't do that though- they said they had to go through the appraisal procedure. On the one hand, it worked out great for us- i didn't have to pay down the loan any extra- although we did have to pay the appraisal fee. Still, that was only about 5 months' worth of PMI.

In reply to Basil Exposition:

I do avoid it. Never have paid it and won't.

It reminds me of paying title insurance to the damn attorney that the title company and does the title work and owns. I get to insure him for his own possible incompetence. Hope that doesn't offend you too.

To the OP - congratulations and good job understanding the rules.

To the complainers - walk a mile in the lender's shoes someday. PMI rarely makes the lender whole, it just softens the blow when the consumer defaults. Once the deadbeat borrower has occupied the property for 6-12 months without paying a penny and trashes the collateral, the lender may get 65 cents on the dollar - minus 5-figure attorney fees to kick the losers out.

Were it not for PMI, borrowers would be SOL with less than 20% down or their interest rate would be jacked up to offset the risk - and that would be for the life of the loan, not just until you managed to build some equity.

As for title insurance, yes - you are insuring the lender against errors and omissions made by the third party that you chose to perform the settlement. The consumer has the right to pick whatever settlement agent he wants. Once again, without title insurance the lender would have to jack up the rate to offset the risk associated with undiscovered liens, dip-E36 M3 municipal bureaucrats, clerical errors and whatnot. And yes - fer godsake pay for the optional owner's coverage!

I don't blame consumers for being careful shoppers and expecting the lender to act with integrity and conduct themselves ethically. But make no mistake about it - this is a competitive business with thin margins and the minute someone figure a way to do it cheaper/better/faster the laws of supply and demand will work their magic.

For now, PMI is the best compromise available to create home ownership opportunity for people of modest means. If you have a better mousetrap, I'm all ears.

In reply to bludroptop:

Thank you. The point of my post was not really to boast, but more to help others who might also have PMI figure out how to discharge it as quickly as possible. Basically, pay your E36 M3, pay it on time, and read your fine print to figure out what you need to do.

Saving a buck is the equivalent of earning a buck-thirty, I say.

volvoclearinghouse wrote:

John Welsh wrote: Now, don't change the amount you are sending in and have the extra $88 or $1,000 per year applied directly to your principle. You should see your house then paid off 5-8 years quicker! Any extra dollars thrown at the loan principle in the early years will have a much greater affect on paying off the loan than extra dollars thrown at it in the later years.

Agreed...however, do I want to stick $88 per month into paying down a mortgage at 4.5% (that's tax deductible), or invest it? This is my big quandary whenever we have extra cash. All of our existing debt is at low rates, and is tax deductible. So paying down debt is essentially like making 3 or 3.5% on your money. Pretty terrible returns.

I was going to post my typical rant about not paying extra, but I think you've summed it up nicely . Don't do it.

I have an FHA loan so the only way to ever get rid of PMI is to refinance. I have been in my home for 5.5 years, never a late payment, around 35% equity and we still can't get rid of it. A refi doesn't make sense for us since I have a really good rate already, and we are hoping to sell in the next 6 months or so. I just hate paying that extra cash for nothing.

spitfirebill wrote: In reply to Basil Exposition: I do avoid it. Never have paid it and won't. It reminds me of paying title insurance to the damn attorney that the title company and does the title work and owns. I get to insure him for his own possible incompetence. Hope that doesn't offend you too.

mmm, not "offended?" In fact, I share your, uh, frustration at paying attorneys for title work. Here in Texas it isn't necessary-- the title insurance company does all the work, including the closing. You gotta read your own documents closely.

I bought and sold a home in Illinois once, though. That required a buyer's attorney and a seller's attorney. The seller's attorney tried to make it a big deal that we use something called Lawyer's Title because he got more fees that way. I insisted they use someone else and got my way, since clear title was largely my risk. It is the lawyers making the rules that lawyers gotta be involved. Follow the money.

Before the days of title insurance you had to have a full title search done. I once saw the one my Granddad had done to buy their home in Dallas in the 30's. It was an interesting document that traced the history of the property to the Spanish land grants. Probably done by a lawyer, but I'm not sure.

spitfirebill wrote: PMI wouldn't be SO bad if it worked for you. But it doesn't, it works for the mortgage holder, no benefit to you.

Without PMI you'd have to put down at least 20%, with it you get to put down only 3%, so tell me mortgage insurance has no benefit to you.

Also should you default on your loan MI means you have less of a loss therefore less deficit to make up.

And on the title insurance issue, I've actually seen situations where Mrs. Linda Smith bought a house with Mr. Smith and when it was sold Mrs. Linda Smith signed the papers, only to find out that the Mrs. Linda Smith that signed the closing docs wasn't the same Mrs. Linda Smith that bought the house.

I've even seen where 3 closings ago someone forgot to have the 2nd cousin twice removed sign the docs on an estate transaction and title insurance paid to fight and pay off that claim

Title insurance is to cover all the things the attorney might not be able to find.

How does this work on VA home loans? When now ex-SWMBO and I bought a house in May 2009, we got qualified for a zero down VA loan. I don't remember the details other than her leaving me 6 months after we bought the house and me trying to do a short sale from the other side of the globe while deployed. Fun times