When purchasing or refinancing a property

When purchasing or refinancing a property where the loan-to-value ratio is 80% or greater Private Mortgage Insurance is required by the lender. This insurance is to protect the lender should the loan go into default and the proceeds of the foreclosure sale do not cover the entire loan.

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Rules regarding cancellation of PMI we're established by the federal Homeowners Protection Act of 1998 and apply to homes purchased after July 29, 1999. When the mortgage has been paid down to 80% of the loan, the Act says that the homeowner may ask to have the PMI cancelled, as long as they have a good record of payment and compliance with the terms of the mortgage, have made the request in writing and show that the home has not gone down in value, nor are there any encumbering liens (such as a second mortgage). The lender must grant the request if all of the above conditions have been met.

When the mortgage has been paid down to 78% of the original loan, the law states that the lender must automatically cancel the PMI. Typically, mortgages are front-loaded and the payments are comprised of mostly interest in the beginning. Therefore, it can take several years to get to this point.

Another way to get the PMI removed is when the equity in the home or the homes value has gone up significantly. This can be due to additions, improvements or an overall increase in the areas market value. These are harder to prove to the lender, and often lenders require a minimum waiting period of two or more years before they will cancel the insurance.

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Posted in Financial Services Post Date 04/24/2020


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