Cancellation of Private Mortgage Insurance

Home Loan Articles >> Cancellation of Private Mortgage Insurance
If you put less than 20 percent down on a home mortgage, lenders often require you to have private mortgage insurance (PMI). PMI protects the lender if you default on the loan. The Homeowners Protection Act of 1998 establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999 for the purchase, initial construction, or refinance of a single-family home. These protections do not apply to government-insured FHA loans or VA loans or to loans with lender-paid PMI.

For home mortgages signed on or after July 29, 1999, your PMI must, except under certain exceptions, be terminated automatically when you reach 22 percent equity in your home based on the original property value if your mortgage payments are current. Your PMI also can be canceled at your request when you reach 20 percent equity in your home based on the original property value, and if your mortgage payments are current.

One exception is if your loan is high-risk due to some circumstance. Another exception is if you have not been current on your payments within the year prior to the time you would be eligible for termination of PMI. A third exception is if you have other liens on your proprety. Under these circumstances, your PMI could continue.

If you signed your mortgage before July 29, 1999, you can ask to have the PMI cancelled once you have accrued 20 percent equity in your home. However, federal law does not require your lender or mortgage service to cancel the PMI automatically.

On a $100,000 loan with 10% down ($10,000), PMI might cost you around $40 a month. If you can cancel the PMI, you can save $480.00 a year and many thousands of dollars over the life of the loan. Check your annual escrow account statement or call your lender to find out exactly how much PMI is costing you each year.

Additional Provisions in the Law
New borrowers covered by the law must be told at closing and once a year about PMI termination and cancellation.
Mortgage services must provide a telephone number for all their mortgage borrowers to call for information about termination of PMI.
Even though the law's termination and cancellation rights do not cover loans that were signed before July 29, 1999, or loans with lender-paid PMI signed on any date, lenders or mortgage services must tell borrowers about the termination or cancellation rights they may otherwise have under those loans.


Some states may have additional laws that apply to early termination or cancellation of PMI regardless of when you signed your mortgage. Call your state consumer protection agency for more information about your state's rules and regulations about PMI. Fannie Mae and Freddie Mac, which buy home mortgages from lenders, also may have guidelines affecting termination or cancellation of PMI on home mortgages signed before July 29, 1999. Check with your lender or mortgage service, or call Fannie Mae or Freddie Mac.

Contact your lender or mortgage service to learn whether or not you're paying PMI. If you are, ask how and when it can be terminated or cancelled.

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