a crucial mortage question: PMI related, Please help

Paying an additional large principle payment will reduce the amount of mortgage interest you pay over the course of the loan.  Your payments will not change because they are already calculated based on your original amortization schedule.  You will simply be reducing the number of months of remaining payments.

I would caution you, however, because you are also reducing the largest tax writeoff you have as you pay additional principle payments.  You may want to consult a CPA  and an Investment Specialist regarding the potential impact to your tax liability at the end of the year.  You may find that it makes far more sense to invest that large sum of money and allow it to compound interest.  In my expereince as a licensed Financial Planner and Mortgage Planner, there are more effective ways to use a large sum of money....and you can typically pay your home off sooner while maintaining the tax writeoff simply by restructuring the transaction.

My advice, if your singular desire is to lower your payment and remove mortgage insurance, would be to refinance your current mortgage.  By doing this, you can remove the M.I., pay down your principle, and you can even reduce your term to a 15 or 20 year mortgage.  Again, I would urge you to consult with an Investment Counselor and a CPA prior to making this decision, however.

but will each additional monthly mortage payment pay off more principal since I paid off a bigger chunk of the house. Or will I still pay the same amount of interest/principal ratio just for a shorter period of time. Does this make sense?

thank you btw

btw the reason I dont want to refinance is becuase of closing cost and loan qualification issues but I will consider it. Just paying another 3 grand in closing costs sounds crummy.

The biggest thing I am pissed about is just that I have to pay off 30% of the house to get rid of my PMI (110 a month). It should be 20% shouldnt it? I just wish I didnt have the pmi and I wish more of my money went toward principal as opposed to interest

Crazy guy, banks probably want 30% now because they are anticipating  the housing decline to continue, so Im sure they want to cover their A$$..... I wouldnt refi, 3K for whatmore like 4K min, to save a measly $110/month, or $1300/ yr..... dont bother, might need to make a move soon, you are losing equity fast.

Call Chase loan servicing and ask if they will allow a re-cast?  The re-cast would allow you to decrease your payments at your current terms on the mortgage.  If I'm not mistaken the law reads that the MI has to automatically have to be removed once you reach 78%.  Pull out your loan documents and read that area very well....

ELender...the "78%" rule is based on the original amortization table.  So generally, it will take many years (7 - 10) to reach the month where the LTV is below 78%...and additional principle payments will not change that timeframe at all.

CG,

The simplest answer to your question is:  It will greatly speed up the payoff time on your first mortgage if you make a large principal payment in order to remove the MI from your payment.  Your payment will "drop" the MI portion, but will put you on a much faster track to Free-n-Clearville.  The mathe question is:  "At what cost and future risk/cost" is this prepayment amount going to be?  Using a "cheap" HELOC today jsut to skip $110/month may prove to be an achiles down the road.  Several years ago, we had HELOC rates at 4% and we were all dancing in  the streets....  3 years later....  Prime wnet to 8.25%  (over double) and we will see many "living in the streets" from the waves of resets, greed, speculation, whatever.  If you can swing the HELOC payment with some type of ending in sight from the draw...go for it and get to Free-n-Clearville as fast as you can because no bank can take that away.

78% applies to the original loan balance in relation to the original appraisal value. 

I have had (not in the past year but prior) many clients simply call their servicing companies order a new appraisal and force them to remove the PMI based on the new market value.

However, in this crazy market, bankers are pussies and scared.  So the bottom line is that you can pay off the loan down to 78% of the value at the time you got the loan that is the same as your paying 7-10 years to get there. 

mortgageplanner@247refi.com

Did you buy your home at the peak of the market, where you have negative equity now, or did your home appreciate in value?  Is there anything you could do to your home to bring up its value for an appraisal to show a higher value than when you originally purchased it?  Paint exterior, interior, etc.?  I had a client refinance out of mortgage insurance in February because of small improvements made to the home that he bought at a screaming deal.  It is worth an overall look to have a realtor give your house a CMA (current market analysis) which is a free service, but they would tell you the market price, and give you ideas that would increase your home's marketability/value should you opt for a new appraisal to rid yourself of MI.

Good Luck!

I would look into refinancing with a no closing cost option. There may be a small rate bump associated with the "no closing cost" loan but depending on your current terms it may work out in your favor. The rate bump for this option could end up adding less to your payment then what the MI cost you. Without knowing the terms of your current mortgage there isnt much of a way for me to know if this makes financial sense but it is worth a look.

Sean, I disagree with you.  If a borrower makes significant principal reductions and reaches 78% faster than the 7-10 years shown on the TIL the lender is still required to remove the MI.  I've had borrowers do this time and time again...primarily after selling their other house and the lender never required a second appraisal.  Some of them needed a little more coaxing than others but they always got done.

We may get to a point where these rules change similiar to FHA having a 5 year minimum requirement but at this point, that is my understanding

Are you guys saying that when Chase told me i had to pay my house down to 70% they were wrong? They claimed to me that each loan is different and that the investors that have my loan say I have to pay it off by 30%. I dont think my home has gone down in value at all but I dont think it has appreciated much either

here's the details for refinancing

inventment property, 6.25%, 143,000 principal, purchased for $155k

could i refinance to a lower or equal rate (on a 15 year loan) with an additional 10% down without having to pay any Closing costs?

Homeowners Protection Act

You need to go into your closing package and find all the sections about mortgage insurance.  I doubt based on the info you have posted that they put you in the high risk category.  The law doesn't exactly spell out what is considered high risk so unfortunately you may be stuck.  I would pull out the mortgage insurance clauses in your closing package and see what they have to say.  If they comment about the 20-22% to remove MI call Chase back and offer to fax it to them and see what happens....if not, I doubt there is any way right now you are going to get terms to make your situation any better without paying closing costs out of your pocket.

78% is the rule I have always known. Banks do not want any more hassle than they are under. Call the customer service department and ask for a manager. State the content on your loan documents. it should clearly be stated there.

By the way, by paying a chunk down will reduce the principle but not the way the loan will apply principle on future mortgage payments. Interest only loans are sometimes better options as the payment is recalculated each month based on the principle balance......   just a thought ~~~~

Lewis. 

Some lenders will change the payments if they are asked to.  It is called Re-casting.  Most big lenders do this all the time.  Some charge a small fee but it is much better than refinancing in my opinion.

Lewis,

I am not sure I agree with the statement that "paying a chunk down will reduce the principle but not the way the loan will apply principle on future mortgage payments."

Recast will adjust the required payment.  I believe that paying a chunck of principle down will change how the payment is applied to principle and interest not the minimum monthly payment.

Check out how an amortization scheule works.  If you closed a loan for $200,000 with a rate of 6% on 1/1/2003.  on 5/1/2008 the payment breakdown would be $926.50 to interest and $272.60 to principle.  If you made an additional $30,000 payment on 4/1/2008 the breakdown will change to $775.13 towards Interest and $423.97 towards principle.  The payment stays $1,199.10.  If you recast the loan it would adjust the minimum payment down but would extend the time that the loan will payoff to the original maturity date.

I started looking into this after I had someone try and pitch me on the MMA account, I had always made the assumption that the payment schedule was set when the loan closed.  I am sure that you have heard the expession to Assume is to make an A$$ out of U amd me....

This might be a good place for planners to chime in.