Private Mortgage Insurance

Private Mortgage Insurance :   How to save hundreds of dollars a year  

When taking o­n a mortgage, many borrowers are not able to put 20% of property value down.   In these incidences the lender requires the borrower to have Private Mortgage Insurance (PMI).   PMI protects the lender if the borrower defaults o­n the loan.   However, the Homeowner Protecting Act of 1998 has set-up rules and circumstances under which PMI can be fairly cancelled.    These rules and protections apply to FHA, VA, or lender-paid PMI loans.  

For home mortgages signed after July 29, 1999, your PMI is automatically stopped when you reach 22 percent equity in your home based o­n the original property value, as long as   your mortgage payments are current. Also, you can request to cancel your PMI, with certain exceptions, when you reach 20 percent equity in your home based o­n the original property value, as long as your mortgage payments are current.

If your loan is deemed "high-risk," you may be an exception to these rules.    Another exception   is if you have defaulted o­n your payments within the year prior to the time for termination or cancellation. A third exception occurs is if you have other liens o­n your property. Under these circumstances, the PMI o­n your loan may continue. Ask your lender or mortgage servicer (a company that collects your payments) for more information about these requirements.

Here is example of the cost of PMI and the savings that can be accrued by cancelling it.   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. Call your lender to find out exactly how much PMI is costing you each year.

Here are some other important details to know regarding PMI:

·      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).

If you want to learn more about Private Mortgage Insurance

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.    This simple step can save you hundreds of dollars a year.