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Cancellation of
Private Mortgage Insurance:
Federal Law May Save You Hundreds of Dollars Each Year
courtesy FTC
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. |
