Q: I closed on my house in July, 1993. I want to know if I’m at the pointA Point is one percent of a loan amount. at which the lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate. can automatically drop my private mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. insurance (PMI). I’ve been told that if I’m at a loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds..-to-value ratioThe Loan-to-Value Ratio is the ratio of the amount of money you wish to borrow compared to the value of the property you wish to purchase. Institutional investors (who buy loans on the secondary market from your mortgage company) set up certain ratios that guide lending practices. For example, the mortgage company might only lend you 80 percent of a property's value. of 78 percent, or less, PMI can be dropped without refinancing.
A: When you’ve paid down your loan so that you have at least 22 percent equityYour share of ownership in a company. Stockholders are often referred to as equity investors, because they invest in the equity of a company. based on the original sales price (or up to 25 percent if you bought your home within the last 5 years), the lender is supposed to automatically drop your private mortgage insurance (PMI) payments. However, that regulation is only for loans that were completed starting in the late 1990s. Your loan doesn’t qualify.
On the other hand, if you can prove that you have at least that much equity in your home, your lender should be able to drop your PMI payments, without you having to refinance your mortgage.
Give your lender a call and ask what the procedure is to drop PMI. The lender should be able to give you these instructions in writing, although you may have to pay for an appraisalAn Appraisal is the opinion of an appraiser, who estimates the value of a home at a specific point in time for the purpose of financing or refinancing a home..
But please think about refinancing. Even if you got the lowest interest rate in 1993, which was about 6.5 percent on a 30-year fixed rate loan, you may be able to do a lot better today, because you now have so much in equity. If you refinanced, not only would your loan be reamortized on the much lower balance, but you would stop paying your PMI.
In fact, you may be able to trade your current loan for a 15-year loan or even a 10-year mortgage and still pay exactly what you’re paying now.
I encourage you to shop around for a refinance now, before rates rise any further. I think you could save yourself thousands of dollars and shave years off your mortgage term.
Feb. 28, 2001.