How to Stop Paying Private Mortgage Insurance on a Home Loan

How to Stop Paying Private Mortgage Insurance on a Home Loan. Private mortgage insurance, also called PMI, is required when a home buyer makes a deposit of less than 20% of the home purchase price. It protects the lender, not you, if you default on the loan. Private mortgage insurance usually runs 0.5% of the total loan value. On a $300,000 loan, that's $15,000 over the life of the loan or $500 a year on a 30-year mortgage.

Realize that if you are making a home purchase with less than a 20% deposit, you are responsible for paying private mortgage insurance premiums until the time that you've paid down your mortgage enough to build 20% equity in your home.

Understand your rights under the Homeowners Protection Act of 1998, which allows you to request that your lender cancel the PMI payments as soon as the mortgage loan to home value ratio reaches 80%.

Know the principal amount you must pay to attain 20% equity in your property. Ask your lender for an amortization schedule that shows each monthly payment for the life of the loan and circle the date that you will, assuming all payments are made on time, have attained 20% equity in your property.

Make all your mortgage loan payments on time for at least a year prior to asking your lender to cancel your private mortgage insurance payments.

Contact your lender in writing to request that the company stop charging you for private mortgage insurance. If your PMI payments are paid into an escrow account as part of your mortgage payment, you may be eligible for a refund. Make sure your letter includes the full name and signatures of all borrowers, the date, the loan number, and a clear and specific request to halt the private mortgage insurance and issue a refund of any escrowed PMI overpayments.

Tips

  • Even if you don't request in writing that your lender cancel your PMI payments, under the Homeowners Protection Act of 1998 lenders are required by law to cease collecting PMI payments once the mortgage loan to home value ratio hits 78% for homes purchased in 1999 or later. Unfortunately, even if your home value soars, that is not figured into the 20% equity calculation for private mortgage insurance purposes. The calculation only considers the home's value at the time of purchase. If your home has appreciated significantly since you purchased it, you can refinance thereby increasing your equity to at least 20%, in which case you would not be required to pay PMI. However, refinancing can be a costly process. Make sure it is worth the additional expense before you pursue that option.

Warnings

  • Mortgages for homes purchased prior to 1999 are, unfortunately, not covered by the Homeowners Protection Act of 1998. Many unethical lenders will continue to collect PMI well past the point that you have achieved 20% equity in your property, and there is no duty on the part of the company to notify you or to voluntarily stop collecting the payments. However, once you notify your lender in writing of your request to cancel PMI, the company must comply. If the company does not comply, notify your state attorney general's office.

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