You bought your home with a 10% down payment, thinking in a couple of years, you'd have enough home equity to refinance and dump the mortgage insurance policy. But it's been four years and your home is worth less than it was when you bought it! Are you doomed to pay for mortgage insurance forever?

No, you aren't, but it will affect your refinancing decision. The "Homeowners' Protection Act," which applies to people who bought their homes after July 29, 1999, says that your lender must automatically cancel your mortgage insurance policy once you have 22 percent equity in your home based on the original property value, if your mortgage payments are current. So if you bought a home for $330,000, and put $30,000 down, you need to get your mortgage balance down to $257,400 to get your mortgage insurance canceled. Your home's value doesn't matter.

Featured Home Equity Loan Provider
    • No Appraisal
    • No Out of Pocket Costs
    • Quotes from Top Lenders
    • Find out if you Qualify!

However, if you refinance, you start the clock over again. If, for example, your home's value has dropped to $315,000, and you refinance $283,500, you'll have to pay the loan down to $245,700 to dump the MI automatically. But sometimes a refi can get you there faster. If you drop your mortgage rate, you could take the difference between your new payment and your old payment and put it towards reducing your principal balance. This gets your loan repaid faster and also helps you dump your mortgage insurance sooner. Try a mortgage calculator like this one to see how refinancing affects your principal balance and when it makes sense to do the deed.