Time to dump mortgage insurance?

Buying a home with a down payment of less than 20 percent usually saddles new homeowners with one more expense: private mortgage insurance (PMI) that's required by the lender.

But the high appreciation of real estate values across the United States means many buyers who went that route may have gained more equity in their homes than they thought. Often enough to shed PMI.

HomeGain, an Emeryville, Calif.-based real estate brokerage, estimates as many as 2.7 million American homeowners - currently paying a total of $1.4 billion per year - may fall into this category.

How to know if you qualify? HomeGain offers a free "PMI Saver" tool at its Web site (www.homegain.com) that walks users through the equity calculation.

What to do if you've hit that 20 percent? Write a letter to your mortgage company and ask them to eliminate the PMI charge, says financial planner Ric Edelman, in Fairfax, Va. Cancelling or reducing PMI can save a homeowner hundreds of dollars a year, he adds. The trick may be getting lenders to sign on. They may balk, since PMI protects them. But if the hard evidence is there, they will probably agree.

In his book, "The Truth About Money" (Harper Business), Mr. Edelman says some lenders will now let you escape PMI even if you have made only a small down payment, such as 5 percent, by slightly upping your interest rate. The higher rate will still usually be lower than PMI plus the former rate, he says. And the interest payment is tax-deductible, while PMI is not.

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