Amy Clark

Day 9: Lower Your House Payment

We have just lowered our house payment by about fifty dollars each month. How did we do this? Well, we finally got rid of our PMI.

If you don’t have PMI, you are already a step ahead of us. This was our first house and we really didn’t understand the concept of PMI and what exactly we were paying for. We are quite familiar with PMI now that we have gotten to pay for it for four years.

PMI stands for Private Mortgage Insurance and it is an unfortunate expense that can get added to your account if you do not have twenty percent down on your house. Why would you have to pay this insurance in addition to your homeowners policy? This insurance is added to your payment to protect the lender, just in case you should default on your loan. The lender also believes requiring PMI is also good for you, as the buyer, because they could not offer the loan to you if they didn’t have this type of insurance.

How much is PMI? Well, according to Quicken Loans, generally it calculates to about one-half percent of the total loan amount. Let’s say you buy a home for $200,000 and put five percent down or $10,000. The annual cost of PMI on your $190,000 mortgage might run $950 a year, adding an extra $80 to your mortgage payment each month.

Getting the PMI removed from our mortgage turned out to be much harder than we thought. By law, this insurance is supposed to be removed automatically once you have invested 22% into the house. The Federal Trades Commission website states, “For home mortgages signed on or after July 29, 1999, your PMI must – with certain exceptions – be terminated automatically when you reach 22 percent equity in your home based on the original property value, if your mortgage payments are current. Your PMI also can be canceled, when you request – with certain exceptions – when you reach 20 percent equity in your home based on the original property value, if your mortgage payments are current.”

Since we had been paying an extra hundred dollars each month on our house payment, in addition to making an extra house payment each year, we reached the amount required quicker than the lender had expected. Since we were still under the 22% we were told we would have to have an appraisal done on our home.

For $145, we had an appraiser (who was chosen by our mortgage lender) come out to our house and do an appraisal. She had to concur that our house had not declined in value due to our neglect or due to market values decreasing. I have to admit that I was quite nervous because the market in our area is extremely slow and houses just aren’t selling for what they used to.

Lucky for us, we met the standard and within a week we were notified that the PMI would be removed immediately and we would no longer have to pay for it.

I will admit that we had to jump through some hoops to make this happen. When we contacted our lender, they said that we couldn’t request PMI removal by telephone. We would have to submit the request in writing to the company. Upon request, they would then send us a letter, within six weeks, to explain what we would need to do to get it removed. This letter came and then we had to submit the check for the appraisal. This took another two weeks to set up and then we had to wait for the appraisal to come through. I am not surprised that this was such a lengthy procedure, after all, they are making extra money by our family carrying this.

Despite this lowering our house payment, we have continued to pay the same amount. Our taxes have lowered and the insurance was dropped, lowering our payment by about $115. We just pretend like these changes never happen and continue to pay the same. The same philosophy is applied to our credit card and student loan payments. If we could pay it before, we can pay it now.

We have lofty financial goals of having everything paid for in seven years time, utilizing the good old snowball effect. Dreams of owning our home and paying down all of our debt don’t seem as far away as they used to. Visualizing that feeling is what keeps us going in the direction we are headed.

If you are looking for more information on PMI and how to get rid of it, I would highly recommend reading this article, by CNN Money, and taking the actions suggested.

Potential Monthly Savings: $50 or more

Sound Off: Have you made any steps toward lowering your house payment? Do you have any personal experiences with PMI or PMI removal?

Published August 09, 2007 by:

Amy Clark

Amy Allen Clark is the founder of MomAdvice.com. You can read all about her here.

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