Trim Mortgage Payments
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Question: We recently purchased a home with a down payment of only 5%, so our monthly payments include charges for private mortgage insurance (PMI) until our equity builds to 20%. Meanwhile, prices for comparable homes have risen by more than 10%, so we might be able to have our home reappraised at its current market value, which would instantly increase our equity to 20% and eliminate PMI premiums. How do we arrange an appraisal? Will a reappraisal have any negative financial repercussions, such as raising our property taxes?

-- Paul, San Diego

Paul: Removing the PMI portion of a loan is of great interest to borrowers who made small down payments because it can shave more than a hundred dollars off monthly payments. There is a federal law that requires lenders of recent mortgages to remove PMI when equity reaches 22% of a home's value. But to have these charges removed, you must contact your lender and arrange (and pay for) a new appraisal. Most lenders have a procedure for doing this, but some are a bit slow on the uptake, so it may take several calls to get action. Before going forward, be sure your equity has increased sufficiently because if it hasn't, you'll just be spinning your wheels.

A reappraisal should have no effect on your property taxes, especially in California, where property taxes are assessed at the time you buy. Only special assessments and home improvements can change your taxes as long as you continue to own the property.

An alternative may be to refinance with a new mortgage. If the loan-to-value ratio is 80% or lower, PMI isn't required. Since interest rates are falling, this could have the added benefit of cutting your monthly payment even further. No-closing-cost refinancing is widely available, so have a good mortgage broker evaluate your current loan to see if this route makes financial sense for you.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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