How to Dump Your PMI
Lenders usually have to drop private mortgage insurance when your equity hits 22% of your home's value. But sometimes it's not that clear cut.
I have been waiting for the day when I would have 20% equity in my home and would be able to cancel my private mortgage insurance. Now that day has come (I actually have 22% equity). But when I called Chase (my lender) and was told that I needed to get a Broker Price Opinion, which costs $150, before they would do anything. Can they do that?
Call it a Catch-22%. Lenders are generally required to drop private mortgage insurance when your equity in your home reaches 22% of the property's value. If you ask, they'll sometimes do it once your equity reaches 20%.
But in figuring your equity, the lender is obliged to consider only your down payment plus the principal portion of your monthly payments. The lender doesn't have to count price appreciation. Chase, for one, drops PMI automatically only if you reach the 22% equity level through scheduled monthly payments (extra payments don't count) and don't have any missed or late payments.
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We asked Chase to look into your case, and the company pointed out that you reached the 22% equity by making accelerated payments. In that case, the bank requires borrowers to pay for a Broker Price Opinion, which costs about half as much as a full appraisal. "Generally, this is to confirm that the outstanding loan is no more than 78% to 80% of the home's value," says Tom Kelly, of Chase. But $150 is probably a small price to pay compared with your PMI premiums.
Chase also will drop PMI in some cases if you've had the loan for at least two years and have accumulated 25% equity based on payments as well as rising property values. You must submit a full appraisal, which usually costs $250 to $300. But that could still be a lot less than your PMI premiums, which tend to cost 0.5% to 1% of your loan value.
