I can think of three reasons for that. One of them or any combination of them could result in such an illogical at first glance situation:
• You made an extra payment towards the principal some time ago and now it’s taking effect. The balance has become so low, that even a higher rate cannot push the actual sum of the monthly payment to its previous margin.
• The PMI got cancelled by the lender. Under the provision of the 1999 Federal law, lenders are required to cancel private mortgage insurance on most home mortgage loans made after July 29, 1999 automatically when amortization has reduced the loan balance to 78% of the value of the property at the time the loan was made. An earlier cancellation at 80% of the property’s value is likely to happen only if initiated by the borrower himself.
• If the rate has increased, but the amount of your monthly payment remained unchanged or went up insignificantly and then froze at that level, you may be in trouble, because these are the symptoms of a monthly payment cap in action. Check your mortgage contract: Is your mortgage an adjustable rate mortgage? Does it carry a payment cap? If this is the case, you should immediately look for ways to avoid negative amortization, and fast, before it increases the outstanding balance of your mortgage and wastes a lot of the effort you have put into paying the debt off.

A borrower has to pay Private Mortgage Insurance (PMI) only if he cannot make a 20% down payment. So, the ways to avoid the insurance are the ways to find enough cash to be able to pay at least 20% of the price of the property in question. Nowadays, the following options are available: a second mortgage; a “piggyback” mortgage; and lender-paid mortgage insurance.

If you already have a mortgage with PMI, you have to bear in mind that you have all the right to have PMI terminated as soon as the outstanding balance hits the 80% of the purchase (or recently appreciated) price of your property. “Recently appreciated” is your opportune key to freedom. If your property has appreciated in value, the absolute amount of 80% of its current price is higher. What’s your advantage? Say, you have a property that was $100.000 worth when you bought it. 80% of this amount is $80.000. This is the magic number that allows you to cancel PMI. You have been paying the mortgage off for some time and your current outstanding balance is $90.000. If your home has appreciated, say, $10.000 through these same years, its current value is $110.000. 80% of this amount is $88.000, which means that with your outstanding balance of $90.000 you are only $2.000 (not $10.000) away from canceling PMI. Neat, isn’t it? Terminating the insurance, however, is not an easy business. Read about the troubles and tribulations involved in my special article. Yet, just one more thing that I want to draw your attention to – the appreciated value of the house has to be documented by an appraiser, accepted by your lender. The procedure is not cheap, so you have to see first if the appraisal will really save you anything in the long run.

Another way to shorten your PMI period is good old extra payments towards the principal. If your mortgage carries no prepayment penalties (any more) each extra penny towards the principal will bring you closer to the 80% margin.

Piggyback mortgages were quite popular before the year of 2007 as a tax deductible alternative for conventional PMI premiums. 2007 broke this subtle balance as Congress made PMI premiums tax deductible, too, but for that one year only. Being limited to certain restrictions and so far unpredictable future, PMI still leaves some room for the piggyback to kick and prove its worth.

First, let me explain how the Piggyback Mortgage option works. If a homebuyer needs to borrow more then 80% of the property’s purchase price, he either goes for one conventional mortgage and pays Private Mortgage Insurance (PMI) premiums, or tries to avoid it by opting for either Lender-Paid Mortgage Insurance (LPMI) or a Piggyback Mortgage, also known as 80/20. Actually, “80/20″ explains a lot by itself: the mortgage is, in fact, a combination of a primary mortgage for 80% of the purchase price and a secondary mortgage for an amount required to fill up after the down payment. The more comprehensive names for this mortgage sometimes are 80/10/10, or 80/15/5, or 80/5/15, indicating the details of the secondary mortgage – 10% borrowed/10% own down payment, 15% borrowed/5% own down payment, 5% borrowed/15% own down payment, respectively.

If both the primary and the secondary mortgages are provided by the same lender, the 80/20 is usually treated as one combined mortgage, which means closing costs for one. If the primary and the secondary mortgages come from different lenders, closing costs are to be paid to each of them, which shrinks the prospect saving a lot.

The 80% primary loan requires no insurance and can be a fixed rate or an adjustable rate mortgage with any options you will find appropriate. The secondary mortgage is also pretty much a free choice, but you have to be prepared that the interest rate on this one will be considerably higher. This mortgage comes second in the refund queue in case the borrower defaults, i.e. is considered to be riskier for the lender, and lenders are usually not shy to charge for whatever risk they claim they may be running.

Depending on the amount of the secondary loan and your financial potential, you may want to have the term of the secondary loan shorter than that of the primary loan. The shorter the term – the higher the monthly payments – the sooner the mortgage amortizes – the smaller the overall amount paid as interest on the loan. Or at least some occasional extra payments can help you get it off your back sooner.

Another way to free yourself from this combined mortgage when the time comes is refinancing when the total balance of the 80/20 combination hits the 80% mark. Refinancing, however, always involves new closing costs and other payments that may turn the whole idea into a bad choice. Not inevitably, though. Every case and situation is unique; the calculations and comparisons should be built on honest and true information about the property, your income and the mortgage details.

It is also true, that Piggyback is not always the best choice against PMI. The two most influential, in my opinion, factors are: the pace of the property appreciation (or depreciation), and the period you are going to actually own the property. If your property appreciates at a considerable pace, it may allow you to get rid of PMI sooner, even though the procedure is not cheap or easy. The property appreciation, however, has no effect on a piggyback mortgage – it has to be paid off according to the conditions agreed upon at closing. Nevertheless, even in this case you may still be better off with a piggyback loan, so always pre-calculate and estimate and compare before making your choice. There are special sites that provide information on current property values in different regions. Check on the area you find attractive, preferably do it periodically during a considerable period of time, to build an idea of the dynamics of real estate prices there.

Piggyback mortgage monthly payments are usually lower compared to a conventional mortgage with PMI. If you are not going to live in the property for a long time, piggyback may be a more sensible option for you, as the monthly payments will not be too heavy on your budget; but a long term ownership will mean that you will have to pay actually two mortgages for a very long period of time. But for the financial inconvenience, it makes it almost impossible for you to qualify for another loan, should you happen to need one. PMI, on the other hand, gets to be cancelled at a certain point, and it always is just one loan anyway.

Now, the last, but not least. Piggyback mortgages, as well as Lender-Paid Mortgage Insurance Loans, require a good credit score to qualify.