MORTGAGE INSURANCE (PMI)
FEDERAL LAW ON MORTGAGE INSURANCE could save you money
QUESTION: Did you know Private Mortgage Insurance might be
cancelable with 20% home equity?
If you put less than 20 percent down on a home
mortgage, lenders often require you to have Private Mortgage Insurance (PMI).
PMI protects the lender if you default on the loan. The Homeowners Protection
Act of 1998 establishes rules for automatic termination and borrower cancellation
of PMI on home mortgages. These protections apply to certain home mortgages signed
on or after July 29, 1999 for the purchase, initial construction, or refinance
of a single-family home. These protections do not apply to government
insured FHA or VA loans or to loans with lender paid PMI.
For home mortgages signed
on or after July 29, 1999, the Private Mortgage Insurance (PMI) requires automatic
termination upon reaching 22 percent home equity (based on the original property
value). Further, it is cancelable when you reach 20 percent equity in your home
based on the original property value, if your mortgage payments are current.
exception is if your loan is "high-risk”. Another is if you
have not been current on your payments within the year before the time for termination
or cancellation. A third is if you have other liens on your property. For these
loans, your PMI may continue. Ask your lender or the company that collects your
payments for more information about these requirements.
If you signed your mortgage
before July 29, 1999, you can ask to have the PMI canceled once you exceed 20
percent equity in your home. However, federal law does not require your lender
or the company that collects your payments to cancel the insurance.
On a $100,000
loan with 10 percent down ($10,000), PMI might cost you $40 a month. If you can
cancel the PMI, you can save $480 a year and many thousands of dollars over the
loan. Check your annual escrow account statement or call your lender to find
out exactly how much PMI is costing you each year.
Some states may have laws that
apply to early termination or cancellation of PMI - even if you signed your mortgage
before July 29, 1999. Call your state consumer protection agency for more information
about your state's rules.
Contact your lender or mortgage servicer to learn whether
you are paying PMI. If you are, ask how about termination or canceling.
- Law requires new buyers be told about PMI termination and cancellation at
closing and once a year.
- Mortgage servicers' must provide a telephone number for all their mortgage
borrowers to call for information about termination and cancellation of PMI.
- Even though the law's termination and cancellation rights do not cover loans
that were signed before July 29, 1999, or loans with lender-paid PMI signed on
any date, lenders or mortgage servicers must tell borrowers about the termination
or cancellation rights they may otherwise have under those loans (such as rights
established by the contract or state law).
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Information provided by this website is general and is not a substitute for professional
advice. Please consult your investment advisor and/or attorney before entering
into any transaction.