How and When Private Mortgage Insurance may be Canceled
Private Mortgage Insurance (PMI) is required for many home buyers who do not have the full 20% down payment to purchase a home. It costs between 0.20% to 1.50% of the balance on your loan each year, based on the borrower’s credit score, down payment and loan term. The annual cost is added to the monthly mortgage payment.
What is PMI?
PMI is insurance which reimburses the lender in the case the borrower defaults on the home loan. It also allows borrowers to refinance their home even if they do not have 20% equity. This is not the same as homeowners insurance, and this insurance does not pay the mortgage if a borrower loses their job. This is simply a way for your client to get into a home without needing to put 20% down to purchase a home.
How do I cancel PMI?
According to the Homeowners Protection Act, a borrower has the right to request the cancellation of their PMI on the day the mortgage falls to 80% of the original value of their primary residence. However, there are other important criteria which must be met to cancel PMI:
- PMI cancellation requests must be in writing.
- Homeowner must be current on mortgage payments with a good payment history.
- Homeowner may have to show there are no other liens on the home (for example, a home equity loan or home equity line of credit).
- An appraisal may be required to demonstrate the loan balance isn’t more than 80% of the home’s current value.
We are always here to help foster your client relationships and assist in their continuous education. If you have any questions, call or email PRM today!down payment, First-Time Homebuyer, Pacific Residential Mortgage, PMI, Private Mortgage Insurance