Ask Eli: Removing (Private) Mortgage Insurance When Home Value Increases

This regularly-scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Rosslyn resident. Please submit your questions to him via email for response in future columns. Enjoy!

Question: I believe the value of my home has increased substantially. Can I leverage this to remove the (Private) Mortgage Insurance from my mortgage?

Before responding, let me catch everybody up on some basics:

• Jake Ryon of First Home Mortgage explains (P)MI simply as “an additional payment a borrower has to pay to offset risk to the lender when the down payment doesn’t equal 20% or more of the sales price or appraisal value, whichever is lower”
• It’s included when the Loan-to-Value (LTV) is above 80%. LTV is the amount of your loan divided by its value. In other words, the value minus your down payment (80% LTV = 20% down payment). This is the basis for today’s question – if the value of a home increase, the LTV decreases (more owner equity), and may allow a borrower to remove (P)MI.
• The monthly cost is based on factors that include LTV, credit score, and loan size. Generally monthly payments range from about .25%-2% of your loan balance, divided by twelve
• Conventional loans = Private Mortgage Insurance (PMI); FHA loans = Mortgage Insurance (MI)

If you have PMI on a conventional loan…

Per Jake Ryon of First Home Mortgage, you can request that it be removed when the LTV hits 80% based on payments against the original value or the value of the home has increased enough to bring the LTV to 80% or less. For example, if the original value of your home was $500,000 and you currently have $450,000 left on the loan, a new appraised value of $562,500 would result in a new LTV of 80% and your loan servicer may agree to remove PMI. Some key points:

• You cannot have a late payment within the last two years
• The request must be made in writing to your servicer (who you make payments to)
• If you’re making the case based on increased value, you’ll need the loan servicer to order a new appraisal, at your expense
• It’s ultimately the loan servicer’s choice whether or not to remove the PMI

It will be automatically removed when:

1. You reach 78% LTV on the original value of your home
2. You reach the midway point of your loan and have not reached 78% LTV (e.g. 15 year mark on a 30 year loan)

If you have MI on an FHA loan…

If your FHA loan was created after June 3, 2013 and your original LTV was 90% or higher, your mortgage insurance cannot be removed at any point during the life of the loan and the only way to remove these payments is to refinance into a new loan once you can attain an LTV of 80% or less. If your mortgage was created before this date, your MI will be automatically removed at 78% LTV.

If you’d like a question answered in my weekly column, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at http://www.RealtyDCMetro.com.

Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, (202) 518-8781.

The views and opinions expressed in the column are those of the author and do not necessarily reflect the views of ARLnow.com.