When can I remove PMI on my mortgage?

 

What is PMI (private mortgage insurance)? 

First, a little background: PMI is typically required on conventional loans where the borrower puts down less than 20% of the property’s contract price. (The term “conventional” refers to any loan that’s not part of a government program).Ultimately, PMI protects lenders if you default on the loan. If — for any reason — you’re unable to keep up with your mortgage payments and the property goes into foreclosure, PMI will help to cover the balance of the outstanding loan when the home is sold at auction. Most homeowners who carry PMI have borrower-paid private mortgage insurance, which they pay as an additional monthly fee with their mortgage.

Homeowners Protection Act of 1998

As you build up your home equity, there are several paths to removing PMI. Under rules outlined by the Homeowners Protection Act (PMI Cancellation Act) of 1998 or HPA, you should be able to initiate PMI removal once the principal balance of your mortgage drops to 80% of the original value of your loan. The HPA gives you the right to remove PMI from your home loan in two ways. You can get “automatic” or “final” PMI termination at specific home equity milestones, or you can request the removal of PMI when you reach 80 percent home equity.

3 Ways to get rid of PMI

Option 1: Pay down your mortgage for automatic or final termination of PMI.

Under the HPA, the mortgage lender or servicer is required to drop your PMI when one of two things happens: The provider must automatically terminate PMI when your mortgage balance reaches 78 percent of the original purchase price, provided you are in good standing and haven’t missed any scheduled mortgage payments.

Option 2: Request PMI cancellation when mortgage balance reaches 80 percent.

Instead of waiting for automatic cancellation from your lender, you have the right to request that the servicer cancel PMI once your loan balance reaches 80 percent of the home’s original value. If you’re making payments as scheduled, you can find the date that you’ll get to 80 percent on your PMI disclosure form or request it from your loan servicer. Make sure the PMI cancellation request to your lender in writing.

Option 3: Refinance to get rid of PMI

When mortgage rates are low, you might consider refinancing your mortgage to save on interest costs or reduce your monthly payments. At the same time, refinancing might enable you to eliminate PMI if your new mortgage balance is below 80 percent of the home value. It’s a double dose of savings.

The refinancing strategy works if your home has gained substantial value since the last time you got a mortgage. For example, if you bought your house four years ago with a 10 percent down payment, and the home’s value has risen 15 percent since then, you now owe less than 80 percent of what the home is worth. Under these circumstances, you can refinance into a new loan without having to pay for PMI.

With any refinancing, you’ll want to weigh the closing costs of the transaction against your potential savings from the new loan terms and eliminating PMI.

Your PMI rights

Homeowners who pay for PMI should be aware of their rights under the Homeowners Protection Act. This federal law, also known as the PMI Cancellation Act, protects you against excessive PMI charges. You have the right to get rid of PMI once you’ve built up the required amount of equity in your home. Lenders have different rules for cancelling PMI, but they have to let you do so.

Before you sign a mortgage with PMI, ask for a clear explanation of the PMI rules and schedule. This will enable you to accurately track your progress toward ending the PMI payment. If you feel your lender is not following the rules for eliminating PMI, you can report your complaint to the Consumer Financial Protection Bureau.

Contact us for more info: 

Aundrea Beach-Greco

Mortgage Advisor, CMPS | NMLS 333739

CMG Financial | NMLS 1820 

8337 W. Sunset Road, Suite 300, Las Vegas, NV  89113

(702) 326-7866

info@AundreaBeach.com | www.AundreaBeach.com

www.AundreaBeach.com