Private Mortgage InsuranceGeorge Burks
If you borrowed more than 80% of the appraised value of you home, you're probably paying private mortgage insurance (PMI). PMI that is not lender paid is a waste of money. If you default on your mortgage, the private mortgage insurance provider will pay the lender, but you still would lose your home. PMI do not offer you any benefits whatsoever. PMI payments aren't even tax-deductible.
PMI increases your effective mortgage interest rate. On a $100,000 loan with 10 percent down ($10,000), PMI would cost you $43 a month. If you can cancel the PMI, you can save $516 a year and many thousands of dollars over the course of the loan. If your down payment was less, the cost of your PMI will be greater. If your down payment was 5%, ($5,000), your PMI expense would cost you $780 a year or $65 a month. Check your annual escrow account statement or call your lender to find out exactly how much PMI is costing you each year.
When you purchase a home and put down less than 20 percent down, most lenders will require you to purchase PMI. You are purchasing insurance to protect the lender if you default on the loan. The Homeowners Protection Act of 1998 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.
New borrowers covered by the law must be told, at closing and once a year, about PMI termination and cancellation. Mortgage providers 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 providers must tell all borrowers about the termination or cancellation rights they may otherwise have under those loans (such as rights established by the contract or state law).
The following applies 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. A cash-out refinancing would be considered 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 provider (the company that collects your payments) for more information about these requirements.
The following applies for home mortgage signed 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 service provider to cancel the insurance.
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. Contact your lender or mortgage provider to learn whether you're paying PMI. If you are, ask how and when it can be terminated or canceled. 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 call Fannie Mae or Freddie Mac, for more information.
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