October 28, 2020
3 MINUTE READ
We love solving problems for homeowners. It’s what gets us up in the morning. At Lenda, we want the process of getting a home loan to be fast, easy and inexpensive. Basically, we want the mortgage industry to join the 21st century!
One of the big questions we’ve run into with potential clients is how to get rid of PMI, or, private mortgage insurance. It’s understandable that people want to get rid of PMI because it’s extremely expensive and it provides zero benefit to the homeowner.
Typically PMI costs anywhere from .5% to 1% of the entire loan amount every year. In California the average mortgage amount owed is $265,113. A homeowner with this loan would pay $2,651 a year in PMI, or $221 a month. That’s a lot of money going straight to the bank with no real benefit to the homeowner. The only purpose mortgage insurance serves is to protect the bank in the event the borrower defaults on the home loan.
The flip side of the coin is that this insurance has made it possible for people with less than 20% to put down on a home to purchase a house. The most common situation where people are paying PMI is with FHA home loans which require PMI because the down payment required to get an FHA loan is usually substantially less than 20%.
And to make matters worse, PMI is not easy to get rid of. Once a homeowner hits better than 20% in home equity they should be able to get rid of PMI but usually the request needs to be made in writing and even then it’s possible that you could be required to get a formal appraisal to ensure the value is there to justify cancelling the mortgage insurance.
Many homeowners are still stuck in low equity positions due to the housing market crash. Other homeowner’s put 3.5% down for an FHA loan and have a long way to go before they’ll get to the holy grail of 20% home equity. People in these situations are stuck paying hundreds of dollars extra every month to pay for PMI. That money could be better utilized by investing for the future.
We’ve had a lot of people come to Lenda looking for a way to get rid of PMI. We’re all about putting more money back into our clients pockets so we decided to do something about the problem of paying PMI.
We decided to remove it from the home loan for people who have as little as 3% home equity. That means that we will eliminate the mortgage insurance for anyone who refinances with a loan-to-value up to 97%.
For illustration purposes let’s look at a $300,000 mortgage where someone has 5% in home equity and is in an FHA loan. At 1% a year they are paying $3,000 a year in PMI, or $250 a month. One of the benefits of an FHA loan is that the interest rates are fairly low. Let’s assume the rate on this mortgage is 4%. That would put the monthly payment at $1,432 on a 30-year mortgage. Add the $250 a month and PMI and this homeowner is paying $1,682 total every month.
With a Lenda PMI Removal loan the interest rate on the loan will be slightly higher. For our $300,000 example the interest rate would be 4.25% putting the monthly mortgage payment at $1,476 a month on a 30-year home loan. Since this person got our PMI Removal Loan they don’t have to pay the $250 a month for PMI.
Total monthly savings by eliminating PMI is $206, or $2,472 a year. That’s a lot of cheddar!
You deserve a better home loan and we’re doing everything possible to make it happen, including eliminating PMI and putting money back in your pocket. Get started by getting a free quote to remove your PMI.