In 1998, Congress passed the Homeowners Protection Act that requires lenders to drop PMI when a loan balance is paid down to 78 percent of the purchase price. This seems straightforward enough, but how long would it take to pay down a loan to the 78 percent level? In the above example, Isadoro and Maria would need to pay their loan down to $100,620. If they made just the required payments with no extra paid on the principal, they would reach that level in about 11 years and have paid $9,094 in PMI fees.
To get around this, many homeowners ride the appreciation tide and refinance when they can get a high enough appraisal. In a hot market, this can happen in a year or two.
So that you don’t miss out, keep track of the sale prices of homes similar to yours in the area. Call the realtor who sold you the home and get a printout of recent sales every few months. Also, if you refinance or pay off an FHA loan and some conventional programs in the first five years or so, you may get a refund on some of your PMI costs. Your mortgage lender should be able to give you the information you need to apply when you refinance.
To get around this, many homeowners ride the appreciation tide and refinance when they can get a high enough appraisal. In a hot market, this can happen in a year or two.
So that you don’t miss out, keep track of the sale prices of homes similar to yours in the area. Call the realtor who sold you the home and get a printout of recent sales every few months. Also, if you refinance or pay off an FHA loan and some conventional programs in the first five years or so, you may get a refund on some of your PMI costs. Your mortgage lender should be able to give you the information you need to apply when you refinance.
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