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Save Money by Getting Rid of Mortgage Insurance

In 1998, Congress passed the Homeowners Protection Act, which requires lenders to drop the PMI when a loan balance pays down to 78 percent of the original amount. This appears straightforward enough, but how long will it take to pay a $200,000 mortgage down to 78 percent?

Well, 78 percent of $200,000 is $156,000, and an amortization schedule reveals that it will not happen until about the 178th payment, or in 14.8 years. That’s a lot of money going to PMI company stockholders— approximately $14,770, if you put 10 percent down.

In reality, the best way to get rid of PMI is to keep a close watch on the house values in your neighborhood, and when your home appreciates about 22 percent, refinance with an 80 percent loan. For instance, a home purchased for $200,000 would need to appreciate to around $256,410.

Depending on your local real estate market, this can happen fast or can take a few years, but certainly it will not take fourteen-plus years. Also, sometimes you can get the PMI company to drop its coverage if you can prove you have 22 percent equity. Check with your PMI insurer for their policy on this.

If you had an FHA loan and refinanced it, you may be entitled to a partial refund of your upfront mortgage insurance premium.

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