According to the Federal Trade Commission, Private Mortgage Insurance (PMI) must be terminated automatically by the mortgage company when the borrower reaches 22 percent equity in the home based on the original property value — most often, the purchase price.
In my instance, the purchase price of my home was $141k. A bargain, really. Even back in 2002.
As of this morning, the remaining balance is $112,535.99. That works out to 20.187% equity based on the original property value.
To reach the 22% mark, I need to pay down an additional $2,555.99 in principle — preferably before October of this year when the mortgage company re-evaluates my escrow account (where the PMI payment is drawn from) and re-calculates my monthly mortgage payment for the following year.
If this is the first post you’ve read of mine on the subject of PMI cancellation, you may want to take a look at this earlier post where I was, in my opinion, wrongfully denied cancellation by Countrywide.
I plan to do this as soon as possible and am currently evaluating various promotional credit card offers I’ve received in the mail to be able to make the additional payment as soon at this week.
The most attractive offer so far is from Chase Bank. It’s 0% until April of 2009 with a 3% transaction fee capped at $199. In this scenario, I’d write a check to myself for $2555 and be charged with a $76.65 transaction fee (3 percent).
My new balance with Chase would be $2631.65 at 0% for 8 months. That works out to around a minimum of $330 per month to pay it off before any finance charges come along. That wouldn’t be a problem.
If this plan were successful, it would prevent paying $85.15 in PMI charges for at least 4 months (possibly more), a $130 appraisal fee, and loads of difficult to calculate interest.
So, for a cost of $76.65, I could save an absolute minimum of $470.60.
Sounds like a good plan.
Before any of this happens though, I first need to get in contact with Countrywide and ensure that reaching the 22% mark will indeed automatically cancel PMI without any additional effort (or $130 appraisals) from me.
My interpretation of the law (and I read it like 50 times over) indicates that automatic cancellation at 22% has nothing to do with an increase or decrease in the value of the home, only with how much the mortgage is paid down. I have my doubts, but we’ll see…
(In all actuality, my wife will probably make the confrontational phone call. She’s *way* better at that sort of thing than I am. That’s why I married her!)
Worst case, I knock off a lot more principle, save a bunch of money, file a complaint with the FTC, and then see where that takes me…