PMI cancellation Question

19 years ago

I'm sure it varies from bank to bank, but I'm hoping some of you can help me understand the rules governing canceling PMI.

My husband and I graduated from college and were fortunate to be able to immediately buy our first house in July 2006. When we purchased, the house appraised for $200k and we obtained a 30 yr fixed loan with PMI for $172k. By making additional principle payments, we now owe $160k. Since we hit 80% LTV, I requested paperwork from the bank regarding canceling the PMI. The generic form-letter I received back says we need:

a 75% LTV

2 yrs good payment history

$350 for a new appraisal

Reading about PMI on the web, it seems that the 75% LTV is required rather than 80% when using an appreciated property value. (We're fortunate to live in an area where prices have gone up, not down. I think our house would appraise for ~$215k today). Since we have 80% LTV NOT including an appreciated property value, is there any way we can cancel the PMI without waiting a full 2 years? I'd rather not have to pay 8 more months of PMI ($120/mo) if I can avoid it. Thanks for any advice!!!

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Comments (5)

novahomesick
19 years ago
Here's what federal law has to say:

The Homeowners Protection Act of 1998 (HPA) established federal cancellation requirements. Under the rules, when your loan balance drops 20 percent below the original purchase price you can request PMI cancellation. When your loan balance is 22 percent below the original purchase price, then PMI is canceled automatically. The rules only apply to loans made on or after July 29, 1999.

Appreciation matters but lenders seem to have a lot of flexibility in making the decision to cancel PMI based on home appreciation. To minimize risk, a full two years of payments is often required.

Based on the information provided, you would have to pay an additional $4000 to reach the 78% automatic cancellation LTV vs. $1350 (8 months more PMI plus appraisal fee)to cancel based on appreciation.

My only experience with cancelling PMI was prior to 1998. When I reached 80% LTV on the original price, the bank made me go through a full refinance. The numbers worked so I went ahead but it was a royal pain.

I would try calling one of the loan officers and speaking directly with them...they may be fee hungry right now.

I hope someone has a better experience to offer.
sharlanet
19 years ago
Seems like we were able to cancel ours after just a year. We bought at the end of 2002.
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sparksals
19 years ago
Funny how they try to stick you with the $350 appraisal when they charged me nothing to open our HELOC account. Heck, they didn't even send anyone to appraise the house.

novahomesick - Based on the information provided, you would have to pay an additional $4000 to reach the 78% automatic cancellation LTV vs. $1350 (8 months more PMI plus appraisal fee)to cancel based on appreciation.

Good point. However, there would be a huge interest savings by paying the $4k to bring down the LTV that would probably be greater than the savings of continuing to pay the PMI for 8 more months.
mfbenson
19 years ago
"novahomesick - Based on the information provided, you would have to pay an additional $4000 to reach the 78% automatic cancellation LTV vs. $1350 (8 months more PMI plus appraisal fee)to cancel based on appreciation.

Good point. However, there would be a huge interest savings by paying the $4k to bring down the LTV that would probably be greater than the savings of continuing to pay the PMI for 8 more months."

I'd rather pay $4K into my own equity than $1350 to an insurance policy that protects the bank (and not me), if I had $4k to spare.

Also, that "huge interest savings" wouldn't come until about year 29 of the loan. Her monthly payment would stay the same no matter how much she pays early, until the loan is paid off.
sparksals
19 years ago
You're right about the timing of the interest savings, but even with the payment being the same, it reduces the principal and ultimately interest from the time the payment is made.

I believe we're in agreement that if they have the money, to put it towards principal instead of PMI that protects the bank. That is actually what I meant - pay yourself for your own benefit.