Cancellation of Private Mortgage Insurance (PMI)
Automatic, and By Request
If you put less than 20 percent down on a home mortgage, lenders often require you to have private mortgage insurance (PMI), which protects the lender if you default on the loan. The Homeowners Protection Act of 1998 (also known as the PMI Act) establishes rules for automatic termination and borrower cancellation (by request) of private mortgage insurance.
Eligibility
The PMI Act applies to home mortgages signed on or after July 29, 1999 for the purchase, initial construction, or refinance of a single-family home that is the primary residence of the borrower.
These protections do not apply to government-insured FHA or VA loans or to loans with lender-paid PMI. If you signed your mortgage before July 29, 1999, you can ask to have the private mortgage insurance canceled once you exceed 20 percent equity in your home, but federal law does not require your lender or mortgage servicer to cancel the insurance.
Automatic Termination
If you meet the eligibility criteria, your PMI must - with certain exceptions - be terminated automatically when you reach 22 percent equity in your home (based on the original purchase price or on the appraised value of your home at the time the loan was obtained, whichever is less), if your mortgage payments are current. If your loan is delinquent on the date of automatic termination, the lender must terminate the coverage as soon thereafter as the loan becomes current. For high risk loans, mortgage lenders or servicers are required to cancel PMI coverage automatically when you reach 23 percent equity in your home, provided you are current on your loan.
Cancellation by Request
Your PMI may also be canceled at your request - with certain exceptions - when you reach 20 percent equity in your home (based on the original purchase price or on the appraised value of your home at the time the loan was obtained, whichever is less), if your mortgage payments are current. You need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may also require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.
Lenders must terminate the coverage within 30 days of cancellation or the automatic termination date, and are not permitted to require PMI premiums after this date. Any unearned premiums must be returned to you within 45 days of the cancellation or termination date.
Final Termination
Under the PMI Act, if your PMI has not been canceled or otherwise terminated, coverage must be terminated when your loan reaches the midpoint of the amortization period (if you are current on the payments required by the terms of the mortgage). For example, on a 30-year loan with 360 monthly payments, the chronological midpoint would occur after 180 payments. No payments or premiums may be required from you more than 30 days after this final termination date.
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