How To Save $100 On Your Mortgage

It’s not often that you can reduce your monthly bill payment, but on your mortgage, there may be one significant exception: Private Mortgage Insurance. If you own a home and your down payment was less than 20% then there is a good chance your monthly payment includes Private Mortgage Insurance, or PMI.

PMI is an insurance policy for your lender that protects them in the event you default on your loan and have to foreclose. Every month part of your mortgage payment includes PMI, and though the exact amount will vary based on your loan, down payment, credit score, and insurer your payment may be as high as $75-$100 or even higher.

The good news is that the federal government has restrictions on how long a lender can charge PMI. Once the remaining balance on your loan is less than 78% of the home’s value your lender is required to remove the PMI, and many lenders will remove the PMI once your loan reaches 80%, if you ask them to. You can remove the PMI from your monthly payment by following the steps below:

1. Check your monthly statement or contact your lender to determine if you’re being charged PMI.

2. Determine your loan-to-value ratio. Take your current property value or your original purchase price (whichever is greater) and multiply by 0.80.

3. Compare the results from Step 2 to your outstanding loan balance. If your loan amount is less than the result you can request PMI removal from your lender.

If your loan-to-value ratio is between 78% and 80% then it’s really your lender’s choice to remove PMI. If they do, then great, you can repurpose those funds, preferably to eliminate other debt or increase your savings. But, if you decline your request, you still have options.

If the difference between what you owe and what your lender requires is something you can comfortably pay without going into additional debt, then you should consider adding the additional funds to your next month payment. But, remember to specify that the additional funds should be applied to your principle balance. Once the payment is processed, follow your lender’s process to have the PMI removed.

If the difference is not in your budget without going into additional debt you should confirm that your lender has the most up to date property value. Market prices, and your property value, have increased significantly in the wake of the housing crisis. This may be especially true if you purchased or refinanced your home within the past few years. Contact your lender and find out the process to update your property value in their records. This may require a home appraisal by a licensed professional but the cost may be worth it if it will help reduce your monthly payment.

Happy Saving.

Daysha Carter is a personal financial counselor based in Seattle, WA. If you’re struggling with your finances or need to reduce your debt and increase savings schedule a free consultation at www.everydaybudgeting.com.