Cancellation
of Private Mortgage Insurance: Federal Law May Save You Hundreds
of Dollars Each Year
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 - which became effective in
1999 - 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, your PMI
must - with certain exceptions - be terminated automatically
when you reach 22 percent equity in your home based on the
original property value, if your mortgage payments are current.
Your PMI also can be canceled, when you request - with certain
exceptions - when you reach 20 percent equity in your home based
on the original property value, if your mortgage payments are
current.
One exception is if your loan is "high-risk."
Another is if you have not been current on your payments within
the year prior to 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 mortgage
servicer (a 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. But federal law does not require your lender or
mortgage servicer 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.
Additional provisions in the law
- New borrowers covered by the law must be told - at closing
and once a year - about PMI termination and cancellation.
- 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).
Next Steps
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. Fannie Mae and
Freddie Mac, which buy home mortgages from lenders, also may
have guidelines affecting termination or cancellation of PMI on
home mortgages signed before July 29, 1999. Check with your
lender or mortgage servicer, or call Fannie Mae or Freddie Mac,
for more information.
Contact your lender or mortgage servicer to learn whether
you're paying PMI. If you are, ask how and when it can be
terminated or canceled.
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