Cancellation of Private
Mortgage Insurance: Federal Law May Save You Hundreds
of Dollars Each Year
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 PMI.
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
New borrowers 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).
Next Steps
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 canceled.
For more information
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consumers spot, stop and avoid them. To file a
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issues, visit www.ftc.gov
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