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How to Eliminate PMI (Private Mortgage Insurance)
For real estate investors and primary home purchasers alike, there are ways to eliminate your PMI, but the method you must use depends on when you purchased your home.
Homeowner's Protection Act of 1998
This law established rules for automatic termination and borrower cancellation of PMI on home mortgages for both real estate investors and primary home purchasers. The law applies to a many residential mortgages signed on or after July 29, 1999, including refinances. It does not apply to government-insured FHA or VA loans or to loans where the lender paid for the PMI. Ask your lender if your loan qualifies.
- The Act calls for automatic termination when you reach 22% equity in your home (based on the original property value).
- Your mortgage payments must be current, and you must not be considered a "high-risk" for default.
- The PMI may continue if you have a poor payment history or if you have placed other liens on the property.
- Borrowers must be told at closing and once a year about PMI termination and cancellation laws.
- Mortgage servicers must provide you with a telephone number where you can call for information about termination and cancellation of PMI.
- Lenders are obligated to tell borrowers who are not covered under the new law about the termination or cancellation rights they may have.
No matter when your loan was signed, you can ask to have the PMI canceled once you exceed 20% equity. You might also be able to cancel the PMI if you can show proof that your home has increased in value, but lenders often have a minimum wait time before they will accept such evidence--typically two years.
Don't hesitate to ask your lender as many questions as necessary to help you understand every aspect of PMI. It's a great tool when used wisely.
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