Canceling Private Mortgage Insurance
Private Mortgage Insurance is a special type of insurance policy, provided to protect the lender against loss if a borrower defaults on their loan. Most lenders require PMI when a homebuyer makes a down payment of less than 20% of the home's purchase price. The Homeowners Protection Act provides two methods for you to remove PMI (Private Mortgage Insurance) from your home loan: requesting cancellation or automatic cancellation. Keep in mind that these rules apply to conventional mortgage loans and are only applicable to loans that closed after July 29, 1999.
Requesting PMI Cancellation
You can request that your lender cancel PMI when the principal balance of your mortgage falls, or is scheduled to fall to 80 % of the original value of your home. Here are some additional requirements that must be met in order to cancel PMI:
Your request must be in writing.
You must have a good payment history and be current on your payments.
Your lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
Your lender can also require you to provide evidence, usually with an appraisal, that the value of your property hasn't declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel PMI.
Automatic PMI Termination
Your PMI will automatically terminate on the date when your principal balance is scheduled to reach 78 % of the original value of your home. You must be current on your payments on the anticipated cancellation date. Automatic PMI termination is different than a cancellation request. Your lender must terminate PMI even if the principal balance of your loan has not actually reached 78% of the current value of your home – for example, because the value of your home declined.
Cancelling PMI on FHA and VA loans
If your loan is guaranteed by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA), these rules generally won't apply because there are often minimum time limits required for the premium payments. If you have questions about mortgage insurance on any type of financing, contact your loan professional.
ABOUT THE AUTHOR
Toni F. Ryan | NMLS#230507
Senior Loan Officer | Pinnacle Home Loans
Toni F. Ryan has over 20 years experience in mortgage lending - both on the wholesale and retail levels. She believes that education is key to making the best decision for YOU! She shares her insight into the lending world here and encourages your feedback. Don't forget to connect on Facebook!