Avoid Private Mortgage Insurance

PMI (Private Mortgage Insurance) (what I consider a rip off!) is an amount you have to pay it if you put down less than 20% on a new mortgage. I think of PMI as a penalty, because you never get the money back, you simply shell out cash to the lender.
Mortgage companies claim that it’s a form of protection for them, in case you default on your home loan. Many companies abused this protection and would make it extremely difficult to cancel the PMI, in fact, they abused it to the point that the government had to jump in and pass a law to stop this behavior.
It’s called the Homeowner’s Protection Act of 1998 or PMI Act and requires lenders to allow home owners insured after July 29, 1999 and who meet specified requirements to have their PMI canceled. If you received private mortgage insurance before then, you need to contact your lender for more information.

Private Mortgage Insurance

The new law concerning PMI allows a home owner to cancel private mortgage insurance in two ways.
1) If the home owner has 22 percent or more in equity, then the mortgage company must automatically cancel the PMI. For this to work, you’re payments must be current and you do not have a high risk mortgage loan.
2) You can request your PMI be canceled if your home equity reaches 20 percent.
If your mortgage company does not cooperate, you can complain to the appropriate federal regulator. Also available is the FTC at 1-877-FTC-HELP.

Avoid PMI

There are many ways in which people avoid PMI. The most popular way to avoid PMI is by splitting the loan into two separate loans known as an “80-10-10″ or “80-15-5″ loan.
This is how it works – your first loan is 80 percent and the second loan is 15 percent leaving only %5 you need to come up with. Because the first loan is only 80%, you are saved from having to pay PMI.
Careful, some mortgage companies will try to stick in extra fees, something you can refuse. The market is very much in your favor and a lender will do just about anything to get the loan, so be firm and ask questions.
Disclaimer: This is just an overview to help you obtain a basic understanding of a PMI. For official information, contact your lender or government institution. We are not a bank or lending institution, so get do more research before making any decisions.