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How to Cancel Private Mortgage Insurance (PMI) on Conventional Loans
Cancel Private Mortgage Insurance (PMI) that you pay on your mortgage loan, you must be up to date with your monthly payments. And you have to reach the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home.
These rules apply to mortgages closed on or after July 29, 1999. There are three ways to remove PMI from your home loan: Refinancing, canceling PMI or PMI termination.
Refinancing to remove PMI
If you originally purchased your home and your down payment was less than 20%, your lender required you to buy mortgage insurance. The same goes if you refinanced with less than 20% equity.
When mortgage interest rates are near record lows, as they are now, refinancing can allow you not only to get rid of PMI, but you can reduce your monthly interest payments. It’s a double-whammy of savings.
The refinancing tactic works if your home has gained substantial value since the last time you got a mortgage. Let’s say you bought your house 3 years ago for $100,000, and you borrowed $90,000. That means you have a loan-to-value ratio of 90%, and you pay for PMI.
Three years later, you’ve made all your payments and your new loan balance is $85,000. And your home’s value has gone up — now it can be appraised at $112,000. Its value has grown 4% a year.
At this point, you owe $85,000 on a $112,000 house. This means you owe 76% of the home’s value — well under the 80% loan to value that triggers the need for mortgage insurance. Under these circumstances, you can refinance into a new loan without having to pay for PMI.
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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 can’t find the disclosure form, contact your lender.
You can also make this request earlier if you have made additional payments to reduce the principal balance of your mortgage to 80 percent of the original value of your home.
There are other important criteria you must meet if you want to cancel PMI on your loan:
- The request must be in writing.
- You must have a good payment history and be current on your payments.
- The present lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
- Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property hasn’t declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel PMI.
If you meet these requirements your servicer generally must cancel your PMI when you request it.
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 percent 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.
It’s worth noting a termination request is different than a cancellation request. Your lender must terminate PMI even if the principal balance of your loan has not actually reached 78 percent of the original value of your home – for example, because the value of your home declined.
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 percent 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.
Termination of PMI at the loan’s midpoint may occur before reaching 78 percent of the original value of your home for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment. Keep in mind that you must be current on your monthly payments for termination to occur.
If your loan is guaranteed by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA), these rules generally won’t apply. If you have questions about mortgage insurance on an FHA or VA loan, contact your servicer.
If you have lender-paid mortgage insurance, different rules apply.
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