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Late Mortgage Payments Sabotage PMI Cancellation

Late Mortgage Payments Sabotage PMI Cancellation
by Mark Walters

There's something you should know about PMI !

Private mortgage insurance is commonly referred to as PMI. If a buyer makes a down payment of less than 20% of a home's value the lender will insist that a premium for PMI be added to every monthly payment.

Statistics prove that the more money a buyer has invested in a home the less likely they are to default on mortgage payments. With less than 20% down lenders want added security for the loan and so PMI was developed. Nice for lenders... expensive for borrowers.

The federal Homeowners Protection Act of 1998 mandates two ways to cancel PMI.

1. When regular monthly payments have paid down the loan balance to less than 78% of the ORIGINAL APPRAISED value of the home. Current appraised value does not count even if the value of your home has doubled.

2. If you pay an extra amount over and above the monthly payment so that the loan balance falls below 80% of original value.

The act excluded FHA loans made before 2001. Mortgage insurance on those loans can never be canceled.

What if you bought a home in Southern California and the value shot up 40% during a ten month period? That's not covered in the Homeowners Protection Act, but most lenders will listen to a request to cancel the PMI... but not during the first two years of the loan. 

After two years the lender will require that the value of the home has increased to the point where the loan is 75% or less of the potential selling price. Then they may release the buyer from PMI premiums. You must ask!

WARNING! THIS CAN BE EXPENSIVE! 
Many homeowners make a huge mistake when they are late with mortgage payments. If you have a poor payment history the lender is not required to lift the PMI. You will be out a huge amount of money... over many year as you continue to make those PMI payments... even though your loan balance is well within the lenders normal limits.

PMI makes it possible to buy a home with a small or no down payment, but don't be fooled. It is very expensive and every homeowner should do what's necessary to get rid of it as soon as possible.

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