Private Mortgage Insurance (PMI). PMI is a supplemental
policy that protects the lender if the borrower defaults
on the loan.
Over the past few years it has become increasingly more common to
see home buyers using down payments of less than 20 percent. This
high "loan-to-value" ratio presents the lenders with a
potentially large risk. To offset this risk, a supplemental policy
known as Private Mortgage Insurance (PMI) is often added to protect
the lender in case a borrower defaults on the loan.
PMI can be a large money-maker for the mortgage lenders. The amount
of the insurance, often well over $100 per month,
is commonly rolled into the mortgage payment and often overlooked
by the homeowner.
Until recently, lenders were under no obligation to tell a home
owner when they had reached a point where the PMI can be dropped.
In most cases, a law now obligates lenders to terminate the PMI
when the principal balance of the loan reaches 78 percent of the
original loan amount. (* for more information,
Refer to Federal Trade Commission article below)
Since many areas of the United States have seen recent significant
gains in the value of real estate, it is quite possible that their
mortgage balance is well under the 78 percent of the home's current
market value. This makes it sometimes possible to have your lender
drop the PMI portion of your monthly mortgage payment and could
result in thousands of dollars saved over the course
of a conventional 30 year loan.
It is important to note that this law only applies
to home loans - whether first time or refinances - that closed after
July, 1999. Also certain other conditions must be met, such as being
current on the loan payments. Buyers that purchased before July
1999 can also have their PMI removed, but they must initiate the
process and though the lender is under no obligation to do so, most
The hardest thing for most home owners to know is just when does
their home equity rise above this magical 20 percent point? A state
certified and licensed real estate appraiser can certainly help.
Our office offers specific services to help customers find the market
value of their home to help the home owner possibly remove any PMI
payments. Many mortgage companies will often eliminate the PMI portion
of the payment with an approved appraisal report. The savings from
dropping the PMI could pay for the appraisal in a matter of months.
(*) Article reprinted from the FEDERAL TRADE COMMISSION,
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
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
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).
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
Contact the FTC for More Information at www.ftc.gov,
7383 El Camino Real
968 W. Grand Ave #203
P.O. Box 637
Atascadero, CA 93423
Call our office for more details. 805.610.6454
We offer a limited number of appraisals with a turnaround time of 48 hrs.
Contact us for details
Are you paying for private mortgage insurance when you don't need to?