PMI for the life of the loan? No options?

Question

Hey all, first post, please be nice ;)

My first property purchase was in 2017. I very much was guided by a family member and just did whatever they said. Been a great experience for 7 years. On a whim, I recently reviewed a monthly mortgage statement and saw I'm paying $150 in PMI. I have over 40% equity based on loan amount of $200K and general market value of the property at $400K (unsure what assessed value would be).

I'm thinking I'm a candidate for PMI removal. Called the bank, who quickly said "sorry, your loan does not have an option for PMI removal." Apparently, the contract I executed included a clause for PMI for the life of the loan. I'm shocked and embarrassed because I've never heard of "forever PMI". Yes, I'm a noob, but I've only ever heard of PMI coming off once you satisfy equity requirements. So here I am thinking oh great, I am past due on doing this, but at least I'll start to save another $150/mo!

Nope.

Mortgage servicer says only way to remove it is to re-fi. I guess I'm asking how common this is; if I would have been successful in somehow negotiating out of that clause; and if I have ay options to remove PMI at all? I'm just so deflated! Forever PMI? Ugh!

Matthew Crivelli · Answer

FHA Loan = PMI for the life of the loan. The servicer is correct, only way out is to refi. You must of had less than 20% down when you initially purchased the home, if you had the 20%, the lender would have steered you to a conventional mortgage. This is the price you pay for having the low initial down payment unfortunately. :(

Doug Smith · Answer

Likely an FHA loan. They have a lot of advantages, but PMI stays. You're only option to remove it is to refinance it.

John Burke · Answer

I know it sucks but FHA does require MI for the life of the loan unless you put 10% or more down and then it drops to 11 years. A couple of thoughts about your situation.

1) Statistically speaking most people stay in their home/mortgage for 5-7 years so you're right at the end of that range. It doesn't sound like you have plans to sell anytime soon, right?

2) The FHA MI you're paying is going down every year based on the principle balance.

3) You could look into a cash-out refi to see if rolling in other debt helps it make sense to refinance. For example, I just had a client refinance out of a VA 30 year fixed loan at a ridiculously low rate &, even though their rate went up, they're saving over $2,100 per month thanks to the debts we paid off.

You obviously want to go from an FHA loan to conventional to avoid the MI. That saves you $150 per month right out of the gate but it will probably be offset by the closing costs and the increased rate. That's where rolling in other debt could really make the difference.

Ron S. · Answer

You knew about the PMI when you took the loan out. You also benefited from the tax deduction that includes PMI and per your own statement, it's been a great experience until you looked at a recent statement that reminded you of what you once knew but forgot from long ago.

Do the math. Will a refinance now recover $1,800 per year you pay in PMI? Will you be able to get a rate now, low enough to reduce your payment and recover the cost of the refinance in 3-4 years rates in 2017 were 3-4%. Today they are 6.5-7.5%) . Will you be there in your home in 3-4 years?

In my opinion, there are too many factors to consider to refinance, just because you have PMI. If the math works ok but it should be compelling and  a no brainer in savings for you to refinance now, in this market.

Dave Skow · Answer

@Samuel Metcalf- sounds like you have a FHA loan as  PMI is permanent in most FHA loans ....I would ask  the bank that holds the loan for  refinance  options and then shop around to see if there are  any refinance options that  make sense ...if not - live with the loan you have  but be  ready to refinance  when rates drop

Samuel Metcalf · Answer

Thank you! Yes, just discovered this but I appreciate your helpful reply so quickly.

Samuel Metcalf · Answer

Just in case anyone happens to stumble on this post... I have my answer! I see another user recently asked exactly what I did.

https://www.biggerpockets.com/forums/48/topics/1174768-attem...

I also have an FHA loan. This forever-PMI clause is apparently common in FHA loans following the 2008 housing SNAFU. I'm locked into PMI with no out unless I re-fi. Sad trombone and anger ensue...

PMI for the life of the loan? No options?

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