Private Mortgage Insurance (or PMI) is an extra charge that banks require when the amount of a loan someone takes out to purchase or refinance a home causes the loan to value ratio to exceed 80%. This means that the buyer or owner has less than 20% equity in the home. The bank requires PMI in the event the homeowner forecloses or the market shifts and the buyer has to do a short sale.
PMI can range anywhere from .3% to 1.5% of the original loan amount per year according to Bankrate.com. It is usually paid as a separate line item as part of the mortgage payment. The PMI rate can vary according to size of down payment, credit score, and insurer.
If you have been paying an extra charge for PMI each month, this is likely a charge you would like to be rid of. The great news is that home values in Seattle and King County have been on the rise. Since in a conventional loan, the PMI rate must be cancelled when the loan-to-value ratio (appraised value/loan amount) drops below 78%, the rise in home values should be helping your situation.
If you have been paying PMI, have been paying down your mortgage principal, and prices have increased to the point where you think you shouldn’t be paying PMI, it may be time to ask your bank to reassess the situation since banks may not be aware of what is happening in our local market.
If you would like to know how prices have appreciated in your area so you are ready to reach out to the bank, I would be happy to help. Please give me a call, text, or email: 206.730.0962 or nina.bjornstal@sothebysrealtycom.