When To Cancel Private Mortgage Insurance

When To Cancel Private Mortgage Insurance

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Private Mortgage Insurance (PMI) is a type of insurance required by lenders when you purchase a home with less than 20% down. If you cannot come up with enough money to meet the 20% threshold, you can usually still get a mortgage but the lender will want to protect themselves by requiring that you obtain and pay for PMI.

Lots of homeowners dislike PMI, seeing it as an added cost to homeownership. Some consumers are also unaware that PMI isn’t for the life of the loan, that it can be cancelled at some future date.

How To Cancel PMI

  • Your PMI should automatically go away when you have paid down your mortgage to 78 percent of the value of your loan according to the terms of the 1998 Homeowners Protection Act (HCA). With certain high risk loans the threshold is 77%; in either case PMI must stop soon thereafter with excess insurance premiums returned to you.
  • PMI can also be canceled if your home’s value has increased to the point where your equity in the home is at least 20%. Provided you have been making payments on time and are current with your loan.

When PMI Won’t Die

You may still be paying PMI beyond when you think it should be cancelled if:

  • Your home’s value has actually declined. With some areas of the country experiencing a housing correction, your home may now be worth less than what you paid for it.
  • There is a second mortgage on your home. If you took out a small equity loan/line of credit (second mortgage) on your home, you’ll still need to pay PMI for the first mortgage until the second loan has been paid off.

One more thing — you may need to obtain (and pay for) an independent appraisal to verify your home’s value before PMI can be cancelled.  Only after confirmation is received and everything verified will PMI be removed once and for all.

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Categories: Home Financing

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