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Mortgage Insurance
One of the requirements of buying a home is to have mortgage insurance. You will hear the term, “PMI,” which stands for Private Mortgage Insurance. Typically, a PMI is required if your down payment is less than 20%. A special act was implemented in 1999 called The Homeowners Protection Act of 1998.

This rule states that a homebuyer can cancel PMI on a home mortgage for mortgages signed on or before July 29, 1999. This would cover purchase, refinance, or initial construction on a single family home. These rules of protection do not apply to an FHA or VA loan taken out with a lender-paid PMI.

If you purchase a home after July 29, 1999, a PMI must be automatically terminated once you have 22% equity in the home, although there are some exceptions. One of these exceptions would be if you have a high-risk loan. A second exemption would be if you have not been current on your monthly mortgage payments within the same period or cancellation or termination. Third, if your property has any liens on it. Under these circumstances, the PMI could remain in force. Your lender or Mortgage Company can help you with any questions.

Let us say you took out a $100,000 loan on your home and put $10,000 down, or 10%. You would expect your PMI to cost somewhere around $40 a month. If you were to cancel the PMI, you would have an annual savings of about $480. Again, your lender or Mortgage Company can calculate what your actual savings would be. This law has some additional provisions that you should be aware of, which include:

  • Mortgage service companies are required to provide a phone number for all the borrowers, providing them with a means to obtain information on how to cancel or terminate the PMI.

    New homebuyers covered under this law must be advised at the time of loan closing and once during the year about the option to cancel or terminate the PMI.

    While this law’s cancellation or termination does not affect any mortgage loan after the July 29, 1999 date or for loans that were secured with lender-paid PMI, the lender or Mortgage Company must advise the borrowers about their rights for cancellation or termination.

    You should also check specifically to the state where you live, as there may be laws that would apply to an early cancellation or termination of the PMI, even if the loan were signed after July 29, 1999.

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