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| Say Good Bye to Your PMI |
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If you own less than 20% of the appraised value on your home, the bank wants to get an insurance policy - private mortgage insurance (PMI) that protects them if you default. Rest assured that while having 20% in equity may seem very far in the future, it will and you need to be ready for it. Why pay one dollar more for PMI if you don't need to?
Once upon a time, banks were not required to tell you if and when you reached that magic 20% mark. You could go on paying it for the life of the loan, and the bank wouldn't say a thing. After 1999 however, banks are required to automatically cancel the PMI payments once you have reached 22% of the value of the home. (FHA and VA loans do not automatically cancel PMI, nor do loans originated before 1999 or those in which the buyer is considered "high risk" or has not made every payment on time.)
While this may have you breathing a sigh of relief, don't forget that it takes longer than you think to get to that 22% mark because of the compound interest. At the beginning of the life of your loan, you are paying a huge amount of interest and a very small amount of principle.
So how can you get out of paying that pesky PMI without waiting for years and years? There are a few ways.
- You make some changes to your home.
You've paid $400,000 for your house and you put down $40,000. You have paid off 10% of your equity and are required to pay PMI. Let's say you put on a nice addition, upgrade the bathrooms or make some other change that increases the value of the home. An appraiser tells you that your house is now valued at $450,000. Now, your equity includes the $40,000 you put down and the $50,000 so you now have $90,000 in equity. Therefore, you own more than 20% and no longer have to pay PMI.
- The housing market in your area changes.
Yes, I realize that home values increasing is not something you hear much these days. But, things do change and you never know what forces outside your control can increase the value of your home - a newly developed shopping center nearby, a company headquarters relocates to your area, for instance.
- You make extra payments toward your principle.
Of course, you can also increase your equity the straightforward way - simply writing more checks toward it.
Keep track of your financial relationship with your home, and write your lender the minute you reach the 20% mark in your equity. Then, start planning what to do with the extra money you will save on PMI. In fact, why not use it to put toward your principle?
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| Debbie on NECN: Shortening the Life of Your Loans |
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(NECN: Brian Burnell) - Mortgage rates continue to fall and Americans are jumping at the chance to refinance. While many are lowering their monthly payments, more and more people are taking the opportunity to shorten the life of their loan.
See Debbies full interview!
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| August's Home Value Improver |
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5 Low Cost, High Yield Home Projects
Many of us would love to call the architect and general contractor to get moving on that basement finishing project we've been dreaming about, but it's just not in the budget. The good news is that there are lots of things you can do yourself that are inexpensive, easy, and that will net you increased aesthetic (or practical) enjoyment of your home.
- Update some window treatments.
If you're thinking "window treatments aren't cheap," it's because I'm not talking about the custom-made kind. I'm talking about making a quick trip to Target, Home Goods, or some other shop with stylish yet inexpensive home décor. Imagine what a nice, fresh Roman shade over your kitchen sink would do for the look of your most-used room.
- Maximize mud room/entryway space.
Whether you're partial to hooks, baskets, or cabinets, make your front room shine with space for everything. You'll feel more organized and make a great first impression to visitors at the same time.
- Change the hardware.
Look around your house at all the different hardware you have: interior and exterior doors, kitchen cabinets, and built-ins are among the places you may find some old and tired drawer pulls or doorknobs. Besides being overwhelmed with your choices, there is nothing to stop you from sprucing the place up by upgrading this hardware!
- Add some lighting.
After five years of saying "we need more light over here," why not finally do something about it? Look around your house for those dark corners and let there be light! You will be surprised at what a big difference it makes.
- Trim the trim.
Instead of being an afterthought, make your trim shine. Add a fresh coat of paint to dulled trim, dust the baseboards (gasp), and look underneath those radiator covers if you can bear it.
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