Q: I closed on my house in July 1993. Have I reached the point at which the lender will automatically drop my private mortgage insurance? I’ve been told that if I’m at a loan-to-value ratio of 78 percent, or less, PMI can be dropped without refinancing.

A: When you’ve paid down your loan so you have at least 22 percent equity based on the original sales price (or up to 25 percent if you bought your home within the last five years), the lender is supposed to automatically drop your PMI payments. However, that regulation is only for loans completed starting in the late 1990s. Your loan doesn’t qualify.

On the other hand, if you can prove that you have at least that much equity in your home, your lender should be able to drop PMI payments without you having to refinance the loan.

Call your lender and ask about the procedure to drop PMI. The lender should be able to provide instructions in writing, although you may have to pay for an appraisal.

Don’t rule out refinancing. Even if you got the lowest interest rate in 1993, which was about 6.5 percent on a 30-year fixed-rate mortgage, you might do much better today because you now have so much equity. If you refinanced, not only would your loan be reamortized on the much lower balance, but you would stop paying PMI.

In fact, you might be able to trade your current loan for a 15- or even a 10-year mortgage and still pay exactly what you’re paying now.

I encourage you to shop around for a refinance now, before rates rise any further. I think you could save yourself thousands of dollars and shave years off your mortgage term.

Aug. 21, 2003