PMI is an insurance premium that is taken out by a mortgage company that protects the lender in the event of foreclosure; this has nothing to do with protecting the borrower. When you purchased your house your lender added mortgage insurance, also called PMI, to your monthly payment unless you made at least a 20% down payment. This payment is based on the original mortgage amount and is paid as part of your monthly mortgage payment until you have an appraisal that shows that your house has increased in value, including additions and/or improvements to the point that your loan is 80% of your current house value.
The FEDERAL HOMEOWNERS PROTECTION ACT of 1998 requires lenders to inform homeowners if they are no longer required to make PMI payments. Homeowners may also request cancellation of their PMI premiums with a certified appraisal showing that borrower has more than 20% equity in the home.
Getting an appraisal is the first step toward lowering your monthly mortgage payments. If the market indicates that your home may have reached a value above the requirement for PMI (generally this is 20%), chances are you can eliminate monthly PMI payments permanently.
Thomas M. Ponce
I am Houston Real Esate Appraiser for The Ponce Group, a Houston Appraisal company.