Overview by Robert T. Lord
If you put less than 20% as a down payment on a mortgage, you may be required to have Private Mortgage Insurance (P.M.I.) or its equivalent on other loan products. PMI protects the lender if you default on the mortgage. The Homeowners Protection Act of 1998- which became effective in 1999- establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. Currently, these protections apply to certain home mortgages signed on or after July 29, 1999 for the conventional purchase or refinance of a single-family home. These protections do not apply to government-insured FHA or VA loans.
For conventional home mortgages signed on or after July 29, 1999, your PMI must 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 it in writing, when 20% equity in your home occurs, based on the original property value. This option also requires that your mortgage payments are current.
One exception in the termination of your PMI is if your loan is "high risk". A further exception is if you have not been current on your payments within the year prior to the time for termination or cancellation request. A third exception is if you have incurred additional liens on your property. When these exceptions apply, your PMI may continue.
Keep in mind that even if your mortgage did close before July 29, 1999, you can ask to have the PMI canceled once you exceed 20% equity in your home.
Although P.M.I. rates vary from one P.M.I.-insurer with another, here's a general example: On a $150,000 loan with 10 percent down ($15,000) PMI may cost you $65 a month. If you can cancel the PMI, you can save $780 a year and many thousand of dollars over the the life of the mortgage. Check your annual escrow account statement to find out exactly how much PMI is costing you annually.
P.M.I. premiums are tax-deductible through 2013; Congress may extend this benefit beyond that date.
We will work with you to determine if you currently have enough equity to terminate the P.M.I. by refinancing; or, at what estimated future time you will no longer have to have it included in your monthly payment. We're here for you.