Every once in a while I decide to go and have a little look at the status of my house and check what my mortgage balance looks like.  I don’t look at it that much because, hey, Ive got 25 years left on the loan and nothing has changed much but as I look through transaction after transaction I can’t help but cringe every time I look at the !@#$ PMI payment.  It sort of reminds me of leach.  It sucks a very small amount of blood on any given day, but man is it annoying and over the course of a lifetime really leaks a lot of blood.

Whoa whoa Jesse, what the hell is PMI?

It stands for private mortgage insurance.

It’s what most lenders make you have if you don’t have 20% down payment on your house. What makes 20% the end all be all of lending? Well,mortgage companies have found that if you have less than 20% equity you are are more likely to default on the mortgage. So the good news is that PMI allows you to get into a house sooner such as in my case where I was in college and had a good paying job but not much saved up.  The bad news is that it is money going down the drain.

As it is I pay roughly $70/month in PMI and I have 15% equity in my home.  I would need an extra 15k as of right now to get to 20% equity.  At my current rate that will happen in 2012.  I did some calculations and three years of an extra $70/month would cut off an extra year, an extra $200/month would make it 2 years of paying to cut off the next two.  Thats assuming no house appreciation but at this point who knows with the housing market.  As it stands that additional money would be much better spent on other things, like high interest student loan and getting ready for the new house.  Not to mention my renters (article coming soon) pay the entire mortgage so its just plain easy to let things be.

So in my case guess the leach gets to keep on suckin.

Yes, sucks to be you Jesse, but how about if I do pass the 20% mark?

In that case then yes, you can drop your PMI.  Call your lender to find out who you need to talk to that can get it done.  A lot of times the mortgage company will not drop your PMI on its own, you have to be proactive.  Not only that, but they may try and delay you and/or tell you no.  If it comes to it there was a law passed  a while ago that says that you must be given a written statement as to when you’ll be allowed to cancel your PMI AND the lender must allow you to cancel PMI when your equity is 22% or higher.  So get out there if you’re to that point and save yourself some money!

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