Well, we might have good news for you!! Wouldn’t you like to find a way to get rid of the PMI portion of your mortgage payment? Or, maybe better yet, just have that amount be applied each month as an extra payment onto the principal of your loan? Mike Aldridge, Loan Officer with loanDepot.com has made available to us this analysis of what you can achieve:
REDUCING PMI in an increasing valued housing market?
For those that are seeing a housing increase in the KCMO metro area at 5.5+% year over year and have Private Mortgage Insurance (PMI) on your loan, please read this message!
As your home has increased in value, the normal timeline for PMI to drop off your loan has been potentially cut drastically. If you have a conventional loan you DON’T have to refinance to drop PMI. According to your amortization chart provided with your closing documents, PMI will automatically drop when you reach 78% Loan to Value (value of your home vs. what you owe). If you look at your Amortization chart (the illustration of how your loan payments are applied over the term), most PMI will take 10 years to drop off. This assumption is based on fact that your home never increases in value. We all know that our market has increased significantly each of the last 3+ years so here is what that can mean for you!
Example: If you purchased a home 4 yrs. ago with a conventional loan for $240,000 and put 5% down, your loan would be $228,000. Presume the term was 30 yrs. & PMI was $100/mo. and that PMI would automatically drop off in August 2024. But now let’s add the increase in value with the market at 5.5% for each of the past 4 years. That would place the current value of your home right at $297,318. Just comparing that to the original amount of your loan, that would put your loan at 76.69% of the value of your property, thereby qualifying you to get your PMI removed in less than 4 years. Less than 4 years because we know that your loan balance will be something less than $228,000. So, you could then apply the $100/mo. being paid for PMI to an additional principal payment, thereby allowing you to pay down your loan an additional $7,200 for the remaining 6 years you would have normally paid PMI. That should allow you to pay your loan off in 25 years instead of 30. Or, of course, you could reduce your payment by $100 as well.
** If you feel that you have reached this example and want to evaluate your loan, reach out to your servicing provider on your mortgage statement and request a PMI audit. In some cases you can see automated valuation without needing an appraisal OR you can potentially be prepared for need of an independent appraisal set up by your mortgage servicing provider.
We all know that prices have risen significantly during the past three plus years, so you likely are well on your way to that magical 20% equity number. The following article is what got our attention and prompted us to reach out to our client base to bring this great opportunity to your attention: https://timandjulieharris.com/2018/07/17/home-prices-to-rise-2x-speed-of-inflation-and-pay.html