You will only be required to pay PMI if your loan amount exceeds 80% of the appraised value of the home. If this is the case because your house has not appreciated enough to avoid it or your taking cash out that would put you over this threshold, then you can structure the loan as an 80% first mortgage and a second mortgage for the balance that you need to avoid the PMI monthly expense.
If you want to combine a first and existing 2nd mortgage that will take your new loan amount over 80% threshold, then you may want to increase your first mortgage to the new 80% figure and refinance the existing 2nd mortgage into one that is smaller but hopefully at a better rate.
Private mortgage insurance (PMI) is an insurance policy that you pay on behalf of the lender if you do not have 20% equity in your home (loan amount divided by the appraised value of your home must be less than 80%). The policy protects the lender in the event that you default on the mortgage for costs they may incur over and above the loan they provided.
This premium is typically paid monthly and is not tax deductible. If possible, lenders such as Family Mortgage will work to show you alternatives to loans that require PMI. These are called “piggyback mortgages” because they require you to do two loans to avoid paying PMI.
The first loan would be 80% of the appraised value of the home and the second mortgage would be for the balance that you are borrowing. We call this an 80/10/10 in mortgage lingo. The other options are an 80/15/5 if you have 5% equity or an 80/20 if you have no equity.
