Updated April 23, 2014: How do I cancel PMI? Will I need to refinance to get rid of lender paid mortgage insurance (LPMI)? Is a new appraisal necessary to terminate monthly premiums? Can I still get PMI removed if I've been late on house payments? Where can I file a complaint?
For years, banks required a 20% down payment from home buyers. Refinancing was based on 80% or less of a home's appraised value. As time went by, mortgage lenders allowed more financing with less equity based on a buoyant real estate market.
However, it's only fair to point out that private mortgage insurance opened the door to homeownership opportunities.
But you may remember that the deterrent for many homeowners to using small down payments was the dread of the tedious work ahead to get rid of PMI.
Even with abundant equity, lenders were reluctant to remove private mortgage insurance coverage. What homeowner wanted to sign up for that headache!
Speed up time to today. Homeowners are still asking, How do I cancel PMI? Additionally though, homeowners are asking savvy questions like What laws protect homeowners and What authority can I contact to file a complaint?
Before we proceed to frequently asked questions regarding the 4 methods for getting rid of PMI, consider these shared requirements...
Q: How do I cancel PMI?
A: Homeowners can submit a written request for MI to be cancelled on the date the mortgage balance is scheduled to reach 80% of the home's original value. (The date is based on the original amortization schedule.)
Q: Do principal reductions lead to early PMI cancellation?
A: If extra principal payments have reduced the mortgage balance to 80% of the home's original value, the homeowner may be eligible for early cancellation.
There are several loopholes that could hinder both methods of PMI cancellation...
Additionally, when you request PMI cancellation, the lender will most likely require a current appraisal (sometimes even two) to protect itself against declining values.
Important: Never pay down your mortgage without a written commitment from the bank to remove the PMI. See Chris's story about getting rid (not) of PMI.
Q: When will lenders automatically terminate PMI?
A: Lenders are required to automatically terminate PMI on the set date a mortgage balance was scheduled to reach 78% of the home's original value. (The date is based on the amortization schedule.)
Important: If the loan-to-value is higher than 78% on the scheduled date, the lender must still terminate your mortgage insurance. This means declining values cannot prevent final termination.
Q: When will final PMI termination occur?
A: Final PMI termination must occur when homeowners reach midpoint of their loan's amortization schedule before the 78% date. For example, in a 30 year fixed rate mortgage, the midpoint would occur at the end of year 15.
Final PMI termination also applies to borrowers with an interest-only period, principal forbearance, or a balloon paymente.
Lenders are not required to terminate mortgage insurance if you are not current on your house payments.
Read about Thomas' appraised value problems during the PMI cancellation process at Ask Kate about Appraised Values: PMI Cancellation vs Termination.
If you think getting rid of private mortgage insurance seems difficult, wait until you hear about LPMI.
Lender paid mortgage insurance, which is actually paid by the borrower, is not a separate charge in monthly payments. Instead, in exchange for a lower down payment, the borrower pays a higher interest rate.
But in most cases, the only way to get rid of LPMI is to refinance, regardless of the amount of equity a homeowner may have accumulated over the years. Read more about this at Denise's question: Refinancing an FHA Mortgage in Exchange for LPMI.
An official website of the United States Government, the Consumer Financial Protection Bureau (CFPB), provides information to homeowners regarding PMI removal laws in the The Homeowners Protection Act. Click here to submit a mortgage complaint to the CFPB.
What if you could ask a mortgage insider anything you wanted regarding PMI decision making? Now you can.
Ask Kate is specifically designed to answer your questions and create dialog regarding mortgage solutions.
January 2016: The Mortgage Forgiveness Debt Relief Act Update.
September 2015: Fannie Mae and Freddie Mac Improve Loan Modifications.
Keep on the right path at A Homeowner's Survival Guide to the Intimidating Mortgage Process.
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