In this video, I explain how you can cancel PMI insurance on your current mortgage.
Private mortgage insurance is an insurance policy that the lenders carries against you in case you default. You, as the borrower, pay the premium on this policy each month in the form of the PMI monthly payment.
When you get an FHA mortgage, there is PMI or private mortgage insurance included in the payment and this PMI never goes away. PMI stays on FHA loans forever – until the loan is paid in full.
The only way to get rid of or cancel PMI insurance on an FHA loan is to refinance the loan into a conventional loan.
For a conventional loan, you can ask your lender to remove the private mortgage insurance/PMI once you reach 80% loan to value on your property.
An appraisal may be required to remove the PMI. When you reach 78% loan-to-value on a conventional loan, the PMI automatically goes away.
You may be wondering how to cancel PMI insurance (PMI) on your mortgage. There are two basic ways to do so, requesting cancellation and automatically terminating PMI. The former method is to make a request to your mortgage servicer, and the latter is to let it terminate on its own.
When does PMI insurance cancel or terminate automatically? You must file a complaint with your mortgage servicer within 60 days of the date your principal balance falls below 80 percent of its original value.
Refinancing can help you cancel PMI insurance
Refinancing can help you cancel PMI insurance. Typically, a conventional mortgage requires PMI, even if you’re putting 20% down.
Fortunately, you can get rid of PMI even if the home’s value has risen substantially since you originally bought it.
If you’re considering refinancing, you’ll want to weigh the closing costs against the potential savings.
First of all, refinancing to get rid of or cancel PMI insurance may not be an option for new homeowners. Since most loans have a “seasoning” requirement, you will need to be a homeowner for at least two years before you can apply for a refinancing without PMI.
Second, there is no guarantee that you’ll be approved. In any case, you should be prepared to take a higher loan amount than you would with a different loan.
To get rid of PMI, you’ll have to pay down your mortgage balance until it reaches 80% of the original value of the home. If you’re able to do this, you can expect to get rid of PMI sooner than you’d thought.
Remember that the rules apply to single-family primary residences that were financed after July 29, 1999.
In addition, property values have been increasing steadily in recent years, so a new loan balance of more than 20% of the home’s value may be required before you can qualify for PMI cancellation.
Homeowners Protection Act protects you against excessive PMI charges
The Homeowners Protection Act, also known as the PMI Cancellation Act, protects you from paying excessive PMI charges.
While lenders may follow different cancellation rules, you are entitled to cancel your PMI coverage if the payments are excessive. Regardless of why you have opted to purchase PMI, it’s crucial to understand your rights under this Act.
To help you understand your rights under the Homeowners Protection Act, here are some of the best tips to protect yourself.
The Homeowners Protection Act requires lenders to cancel PMI insurance coverage once the balance of your loan reaches 78% of the original value. To meet this threshold, you must be current with your mortgage payments and have at least 20% equity in the home.
Lenders must also terminate your PMI coverage on the first day of the month that you reach that threshold. You may also be able to get your coverage terminated if you are behind on your payments.
When does PMI drop off?
When does private mortgage insurance (PMI) drop off? It depends on your lender. Some lenders will automatically drop PMI once you have 22% equity. Others will require a certain percentage of market equity before they’ll drop it.
The “seasoning” rule may also have an impact on whether you can get rid of PMI. For example, you may not be able to get rid of it until you’ve reached 80% loan-to-value (LTV).
To get rid of PMI, you should first have 20% equity in your home.
If you have more equity, you can reduce your monthly payments and eventually pay off your mortgage. Then you can try to pay off your loan at the 80% LTV level.
In addition, you should avoid late payments as this can disqualify you from getting rid of PMI. The lender’s rules for getting rid of PMI may differ from state to state.
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