About Private Mortgage Insurance

Frugal With Real Estate Appraisals

Check out the answer for this question from Inman Consumer News:

DON’T BE A CHEAPSKATE TO GET RID OF MORTGAGE INSURANCE

DEAR BOB: I need to get an appraisal from a certified licensed appraiser to prove my loan-to-value ratio is below 80 percent so my PMI (private mortgage insurance) monthly premium can be cancelled. I called my mortgage lender who is affiliated with an appraiser who charges $300. I phoned an appraiser in the yellow pages who wants $325. But I heard some real estate agents, who are also certified licensed appraisers, charge less since this is a one-bedroom condominium. I don’t feel I need to spend $300 to remove an expense my lender has been taking from me for the last five years. I have never been late with payments. Is there a less expensive alternative? –John M.


DEAR JOHN: Don’t be a cheapskate. You didn’t say how much your monthly PMI premium costs, but let’s say it is $50. Presuming you have at least 20 percent equity in your condo so you are eligible to cancel the PMI, if you pay $300 for a professional appraisal to prove to the lender you have at least 20 percent equity, you will earn back that $300 from just six months of PMI premium savings. That’s an easy “no brainer” expense.

First off, there’s no need to call someone a cheapskate when it’s obvious they’re asking whether it really matters what appraiser you go with. It’s not like the guy is deciding between doing the appraisal to remove PMI and not doing the appraisal, he obviously will do it because it saves him money down the road, but he wants to know whether it really should cost $300 to do it. Also, paying $300 to one of the mortgage lender’s best friend doesn’t guarantee you’ll get a home value that cancels private mortgage insurance. Robert Bruss should’ve read the question more carefully.

John - If you’re certain that the value of your home is more than what you’ll need to cancel PMI, shop around for an appraiser and then check with your lender if they’ll accept that person’s appraisal. You might find someone who will appraise your one bedroom condo for $150. I’ve found though that if you’re doing the appraisal to cancel PMI, the lender will want you to use of their appraisers.

Pay Down Your Mortgage Faster

If you are paying private mortgage insurance and only making the minimum payments on your mortgage each month, consider adding a little extra to your payment in order to get you loan to value under 80%. For mortgage holders who aren’t paying PMI, the incentive to pay extra turns a 30 year mortgage to a 25 year mortgage… not much incentive if you only intend to stay in the house for five years. However, if you’re paying PMI, you’re paying a small premium that can be removed much faster if you accelerate your mortgage payments.

There are two ways you can pay “extra” and speed along your amortization. The first is just adding more to each monthly payment. The extra gets put towards the principal and thus your interest payments will decline (less principal to calculate interest against). The second is paying twice a month (bi-weekly). Simply take your payment, chop it in half, and pay half midway through the month and the other half at the end. The amount you pay is the same but there is less interest because there is less time for interest to accrue.

For example, if you use this calculator from DinkyTown, if you have a $100,000 mortgage and you pay it on the bank’s schedule, you hit 80% at around Month 12. If you switch to a bi-weekly payment, you go from Month 12 to Month 8, that’s four months worth of PMI you no longer have to pay.