As you hold an investment property you can continually look for ways to reduce costs and boost your yield. If you put less than 20% to buy the property you will invariably be paying private mortgage insurance.
The good news is that you don't have to wait until you have paid down the principal enough so that it reaches 20% of the original loan value.
After a certain amount of time you can petition the bank to remove the PMI. Here is a representative case:
After 24 months of on time payments you can request that the bank remove the PMI. This request is based on the current market value of the property. In essence what you are saying is that the property has increased in value giving you a current loan to value of less than the required amount to remove PMI (75%). The one thing you have to pay for is a Broker's Price Opinion or (BPO), which costs $125. The bank will then hire a broker to do a comparative analysis on the property and see if your valuation is correct. If it is you will save years of unnecessary PMI payments for an investment of $125.
If a borrower pays less than 20% of the of the approved value of of the house as down payment, then the borrower is required to pay the private mortgage insurance. PMI provides protection to the lender against loss.
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