How do I cancel PMI?
Private mortgage insurance (PMI) is something a lot of home buyers are faced with if they are not able to make the 20 percent down payment that is generally required for a mortgage. Although PMI is in place to help make home financing more accessible to buyers, it also serves to protect the lender from loss, should the borrower default on their loan. But despite it’s good points, PMI can be a financial burden for homeowners. The good news is PMI can be canceled under specific circumstances.
To remove PMI from your home loan, you will need to first meet a few key requirements. Specifically, you will need to be totally up-to-date on your mortgage payments. According to the Consumer Financial Protection Bureau, if you are current on your monthly payments, and if your mortgage closed on or after July 29, 1999, federal law generally provides two ways for you to remove PMI from your loan: canceling PMI or PMI termination.
These may sound like different ways to explain the same thing, but in reality, canceling PMI is a little different that PMI termination.
Thanks to the Homeowners Protection Act, you have the right to request that your lender cancel PMI once your principal balance falls below 80 percent of the original value of your home. If you look at your mortgage’s amortization schedule, you will be able to determine the date at which this should happen – assuming you continue to make your monthly payments on time. This date should also be on the PMI disclosure form you received when you closed on your mortgage. If you can’t find the form, and if you aren’t sure how to understand your mortgage amortization schedule, simply reach out to your lender and ask them for assistance.
Here are the other requirements that should be met before your PMI can be canceled:
- The request must be in writing.
- You should have a good history of making on-time payments AND be current on your mortgage payments.
- Your lender may require you to certify that no second mortgages/junior liens are on your home.
- You may also need to provide evidence to your lender showing that the value of your home has not declined below the value it held when you first bought it. This is usually done with an appraisal.
If you meet all of the above criteria, your lender will likely grant your request to have your PMI canceled.
PMI termination can actually occur in one of two ways: when your principal balance reaches 78 percent of the home’s value when you bought it, or if you reach the midpoint in your loan’s amortization schedule before the principal balance reaches the 78 percent point. Depending on your loan’s term, the midpoint may be in 15, 10, or 5 years. Check with your lender to determine your mortgage’s midpoint, or refer to your amortization schedule.
Here’s what the CFPB has to say:
“Termination of PMI at the loan’s midpoint may occur before reaching 78% of the original value of your home for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment. Keep in mind that you must be current on your monthly payments for termination to occur.”
The CFPB also says that, even if you do not request that your PMI be canceled, your lender is required to do so once you reach the 78 percent point. However, you will still need to be current on your mortgage payments on the anticipated cancellation date. If you aren’t, the PMI termination will likely be delayed until shortly after you’ve caught up with your payments.
Lastly, there are certain types of home loans that have different rules and guidelines when it comes to canceling PMI. If you have a loan that is backed by Veterans Affairs (VA) or the Federal Housing Administration (FHA), the rules above may not apply. Likewise, if you have lender-paid mortgage insurance, you may be subject to different rules.
The best thing to do is to contact your lender for more information. They can help you understand your options when it comes to canceling PMI and answer any questions you may have.
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