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We have Private Mortgage Insurance on our house because we didn't put 20% down when we bought it. We've recently paid some extra money on the mortgage, and we now have > 22% equity. We've contacted the bank to try and remove the PMI, but they want us to get an appraisal to prove that the we have 20% of the current value of the house.

Housing prices in our area have declined, and it's entirely possible that we don't have 20% equity based on the "market value", but we have more than 20% based on the "original/sales value". We have excellent credit and a perfect payment record.

Does that count for anything? I've tried looking into the "The Homeowner's Protection Act (HPA) of 1998", which deals with automatically cancelling PMI. It's a little ambiguous to me, but it seems the law is on the side of the bank in this case.

Is there anyway to get rid of PMI based on the original value of the house?

Thanks!

  • An update: the bank did eventually stop charging us PMI without an appraisal, just based solely on how long we had the loan. They didn't provide any details, and I don't know the law, but it seems like after 7 or so years of payments PMI is automatically cancelled. – davesw Sep 5 '13 at 15:48
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Once you hit 22% equity against the original value of the home, they have to cancel the PMI. No other factors come into play. See this nice overview.

Before that, at the 20% equity mark, it's a negotiating situation. If the value of the house goes down, that's a strong point in their favour. But you have excellent history, that's strong in your favour.

  • The one caveat is that the MI premiums with an FHA backed loan have to be paid for a minimum of 5 years. bankrate.com/finance/mortgages/no-pmi-with-fha-mortgages.aspx – Jeff Swensen Jun 21 '11 at 16:04
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    Actually the article you reference says "when you've paid down your mortgage to 78% of the original loan, the law says that the lender must automatically cancel your PMI." 78% of the original loan is not usually 78% of the original value of the house. – DJClayworth Sep 5 '13 at 17:16
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I read the linked article as gef05 did, it states that the bank must stop charging PMI.

But. My understanding is different. I understood that the requirement to remove PMI at sub 80 loan to value only occurred after the natural amortization time had passed. For example, you buy a $100K home, you will be at 80% LTV the day you owe 80K. This date can be calculated at the closing as you know your numbers by then. There's nothing stopping you from asking the bank to stop charging PMI sooner, but I believe they already have an end date in mind.

Besides the appraisal request, what exactly did they give as the reason they won't cancel PMI?

Edit - I just re-read the link. The line "you show that the value of the property hasn't gone down" makes the bank's appraisal request reasonable, IMHO.

  • I was surprised at the way in which various sources, all of them reasonably credible, had slightly different interpretations of the situation. I chose the NOLO because it best fit my own experience - we hit better than 20% equity about 18 months after taking the loan out and got the PMI removed immediately. I get the strong impression there is wriggle room in here for the banks. – gef05 Jun 18 '11 at 10:47
  • Unfortunately, this isn't a topic I tag/bookmark. I recall a recent law dictating that the bank was obligated, without prompting, to remove PMI once amortization passed 20% equity. A result of some poor SOBs who paid for the life of the loan, clueless. – JoeTaxpayer Jun 18 '11 at 11:54
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If you truly have > 22% equity, they have to stop it. However, without an appraisal, how do you know if you have > 22% equity? If you bought the house for 100k, and paid your mortgage down to 78k, but now the house is only worth 78k, you have 0% equity, not 22% equity. Without an appraisal, you have no idea how much equity you have.

Yeah, it sucks, but that's how equity is calculated: based on the current value, not the past value.

  • I've made good use of the tax assessor's evaluation. – Joshua Jan 4 at 22:31
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You may find it difficult to remove the PMI under any circumstances, banks will give you the run-around for quite a while hoping you get bored and continue to pay it.

We got rid of ours by refinancing with a different bank, but at the time it was possible to get the new bank to pay all the fees if you worked through the right people, now it may be worth it to just keep fencing with the bank in the hopes that you run into someone with a little decency.

  • But even if they refinance, if the value of the house has gone down, then the equity might actually be below 20% and they will still be paying PMI with the new lender. What David Oneill says is actually correct. – Victor Jan 19 '12 at 11:47

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