How to Get Rid of Private Mortgage Insurance

A primary-residence mortgage loan comes under the Homeowners Protection Act (HPA).

Buyers who pay less than 20 percent down are required to get private mortgage insurance (PMI). This extra insurance does not benefit the homeowner, but protects the lender against loss if the buyer defaults. This lets borrowers pay less money down and the insurance company assumes the risk to protect the lender. The Homeowners Protection Act (HPA) enacted in 1998 obligates the lender to notify the buyer when the payoff figure reaches 20 percent and drop the insurance at 22 percent, but the disclosure rules only apply to primary-residence loans.

Instructions

1. Investigate before taking out a mortgage. Pay 20 percent down at closing and request that there be no PMI insurance placed on your mortgage. This is the best way to keep PMI off your mortgage. If you are looking into a new mortgage, negotiate with the lender. Bankrate reports that some lenders will accept a mortgage without PMI with a higher interest rate. This may work to your advantage, as mortgage interest is tax deductible, while mortgage insurance is not. An 80-10-10 loan may also eliminate the need for PMI, as the buyer pays 10 percent down and finances 80 percent and 10 percent in two loans.

2. Keep your mortgage payments current and keep a good payment history during the life of the loan. Lenders can refuse to eliminate the private mortgage insurance (PMI) if your payment history is spotty.

3. Watch your payments and request termination of the PMI insurance as soon as your payments reach the 80-percent mark.

4. Watch for the halfway point. If your mortgage is 360 payments, 180 payments is the halfway mark. A fifteen-year mortgage halfway point is at 90 payments. If you have not paid at least 20 percent on the principal at this point, you may still request that the lender have the PMI insurance canceled if your mortgage payments are current.

5. Check the annual information provided by the lender. Under the law, the lender must provide a yearly report with an address and telephone number to contact the loan service to see when you can cancel the PMI. Use this required notice to your advantage and contact the loan service. Ask questions and get answers so you can remove the PMI coverage on your mortgage at the earliest opportunity.

References

• Bankrate.com: The Basics of Private Mortgage Insurance (PMI)
• Federal Reserve Bank of San Francisco: Publications: Consumer Information: Private Mortgage Insurance (PMI)

Resources

• Federal Trade Commission: FTC Consumer Alert: Cancellation of Private Mortgage Insurance