Loans Answers

PMI and Home Equity Loans

Question: I’ve been reading in this group about avoiding paying PMI, most of the threads apply to someone buying a home and getting a 80-15-5 loan, or something similar. I have a slighlty different question. I recently applied for and have been approved for a Home Equity loan from the same lender as my first mortgage. Since they were offering no closing costs and a good rate, it was hard to pass up since I knew with the local economy my house value would have risen. My question is, since the house was re-appraised by the original lender, and the value has almost doubled, am I able to have the PMI removed since my total LTV is now well below 80%. Here are some of the facts:

New York State (laws may vary from state to state) Purchase price: $100,000 ; Sept ‘97 (all rounded for ease of math) Down Payment : $5,000 Loan amount : $95,000

Principal paid: $5,000 ($90,000 currently outstanding on loan) PMI target: $76,000 (20% of orig $95,000 loan)

Re-appraisal : $200,000 ; Sept ‘02 Home Equity loan: $25,000

So I will have $115,000 ($90,000 + $25,000) out on a loan that the bank recently appraised at $200,000. My LTV is now 58%.

A few years ago, I asked around on a similar question, except with no second loan. I wanted to know if I had my home re-appraised and the new value caused my LTV to fall well below the 80% limit for PMI, could I get the PMI removed, the answer then was the PMI criteria is based on all of the original values of the first loan. I would still need to pay $19,000 in principal on the original mortgage before I get below the 80% line.

But now that the original lender had their people re-appraise it, and since it doubled in value, I’m guessing I have a case for removing the PMI.

Has anyone had this done? Or “it should work, in theory, but I’ve never tried it”.

Thanks in Advance

Answer: Here in the state of NJ, I was told by my lender that the bank purchases a 2 year PMI insurance policy from a third party, and that if the appraised value made the equity in the home 20% or more – but you were still in that 2 year period, the PMI would not be dropped. However, he could not confirm if that was the bank policy or general practice.

I questioned this, but never checked with my attorney because it was not applicable to me. I just wanted to know. If I were you, I would check with the bank first, attorney second.

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Filed under: Home Equity Loan