Are You Wasting Money on Private Mortgage Insurance?

Everyone has recently learned of the volatility of the housing market and why it has become so difficult to get a mortgage loan to buy a new home. Borrowers are not as trustworthy as once was thought, neither does it seem that lenders are after everything we have learned. However, for a lender to reach out and lend money during this market it is likely going to be done with the help of private mortgage insurance, or PMI.

For the uninformed, private mortgage insurance is insurance that is offered by a private company to guarantee that your mortgage will be paid. This insurance is provided by the private company to the lender to guarantee that if the owner should default on the loan the insurance will pay for the loss. Where it becomes a problem for consumers is that the cost is added on to the monthly mortgage payment.

It is true that this insurance is necessary for some people to get in to a home, but many people don't realize that they don't have to keep paying the payment. As you continue to make payments and build equity into your home you have the right to cancel this policy and take on responsibility for yourself. This can only be done, however, when you have 80% or less of the home's value still to be paid to the lender.

When you have paid 20% or more of your home's value you can call and cancel your PMI coverage whenever you feel like it. Some people will keep the coverage and pay the extra amount every month but would be better suited to put the amount towards the principal of the loan and pay off the home sooner. Either way it is possible that you are over paying for your mortgage and don't realize it. This only happens when you are not paying attention, it is strongly recommended to stay up-to-date on your home's value.