Home buyers that can’t afford to put 20% down on the purchase price of their new home often opt to take out private mortgage insurance (PMI) with their lender to help seal the deal. This insurance protects the lender from a default, and can add more than $100 to a monthly mortgage payment.
Mortgage insurance is designed to protect the lender in case the borrower defaults. The premium is included in the borrower’s monthly mortgage bill and varies depending on the type and size of the loan, the down payment amount and the credit of the borrower.
Here is how you can lower or eliminate Private Mortgage Insurance:
Request PMI cancellation
The Homeowners Protection Act gives you the right to request that your lender cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you cannot find the disclosure form, contact your lender.
Automatic PMI termination
Even if you don’t ask your lender to cancel PMI, your lender still must terminate PMI on the date when your principal balance is scheduled to reach 78% of the original value of your home. You also need to be current on your payments on the anticipated cancellation date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date.
Final PMI termination
There is one other important requirement that some homeowners need to be aware of: your lender must terminate PMI if you reach the midpoint of your loan’s amortization schedule before the 78% date. The midpoint of your loan’s amortization schedule is halfway through the life of your loan. Most loans are 30-year loans, so the midpoint would occur after 15 years have passed.
