PMI removal – Home Equity Loan?
Question: I did ask (the mortgage company). Regrettably, I could not get a straight >answer out of the “helpful telephone operators”. They seemed rather intent >on sending me literature for some strange reason. I couldn’t for the life >of me get an answer to this question, which is why I turned here, and which >is why “I am asking”.
Answer: If these are two completely separate loans, then one does not impact the other. Your first mortgage is still under the limit and therefore does not require PMI.
To understand this, think of the reason for PMI. PMI pays the lender for any losses they might suffer in the event of a foreclosure of the loan. Now, if the holder of the first forecloses, their foreclosure extinguishes the second. Thus they can safely ignore it.
The holder of the second, on the other hand, should be concerned about the situation. If they foreclose they must take title subject to the first. Or if the holder of the first forecloses, they will be left with an unsecured note. Therefore, home equity lenders usually charge higher rates of interest, higher fees, or require PMI, or all of the above in order to compensate for their additional risk.
People at the mortgage company are unlikely to know these things. Even loan officers don’t usually understand mortgage theory and foreclosure procedures. They just follow the rules set out in the operations manual given to them by headquarters.
Hope that helps. Good luck!
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