Question: I have mortgage insurance on my primary residence that I've had for a year and one month. I originally did a ten percent down loan with my lender. We did lots of improvements on the home, which is in a great neighborhood, and appreciation has been good. I paid for an independent appraiser to re-appraise our house. Our equity now is about 24 percent. I sent a copy of the appraisal along with a request for my lender to drop the mortgage insurance, however, they refused, saying it was their policy to wait two years regardless of the equity we now have. They would not honor an independent appraisal and now we would have to pay one of their appraisers after the two years. Is this right and legal?

Casey K.
Washington State

Answer: You're referring to the regulation change a few years ago that has forced mortgage lenders to drop the private mortgage insurance payments that come with properties where the borrower has less than 20 percent equity in the home. Now, under the new regulations, once your equity increases above 20 percent, you can request that the PMI requirement be dropped. Keep in mind, however, this is not an automatic reduction.

Your mortgage lender is making sure it protects its PMI requirement from an overactive real estate market. Your equity has more than doubled in just over a year -- good for you, but give it a couple more years and it may drop again. That's what the lender is afraid of and the regulations allow them to require PMI for a certain period of time, regardless of the equity level.

In the long haul, the payment for another appraisal is not that expensive when you consider the PMI payment could cost you thousands of dollars over the coming years. Be patient and refile your application in a few more months.

Question: I am thinking about refinancing my current loan to one of the following: CODI, COSI, or COFI loans. In your experience are these good loan programs? Are there some "gotchas" that I am not seeing?

Answer: These adjustable rate, index-based mortgages (Certificates of Deposit, Cost of Savings and Cost of Funds indexes) start out with very low interest rates. Two of the issues a borrower should watch for, include:

Published: October 24, 2003

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