Conventional home-loan borrowers save on PMI

Rising equity eases need for mortgage insurance


If you made a down payment of less than 20 percent of your home's price when you got your mortgage, you're probably paying private mortgage insurance, or PMI.

This insurance is meant to protect the lender in case you stop making payments.

If your down payment is 20 percent or more, PMI is generally not charged because the lender has a better chance of selling the home in foreclosure for enough to pay off the remaining debt.

PMI charges vary, but they typically are about 0.04 percent of the loan amount per month.

The Homeowners Protection Act of 1998 has given borrowers with conventional loans (about 80 percent of us) the right to cancel PMI payments when certain conditions are met. People with government-insured loans, such as FHA and VA loans, are not covered by this law. PMI is, in effect, a single upfront charge on VA loans, and the FHA has its own cancellation procedures.

If you got your conventional mortgage on or after July 29, 1999, the lender must cancel your PMI charge when your equity in the home reaches 22 percent of the property's value at the time you took the loan.

On those loans, PMI also can be canceled at the homeowner's request once equity reaches 20 percent of the purchase price.

The lender does not have to cancel PMI on loans deemed high-risk if the borrower has made late payments in the previous 12 months or if the borrower has other liens on the property.

If you got the mortgage before July 29, 1999, the lender does not have to cancel PMI, but many will do so at the borrower's request once equity exceeds 20 percent of the home's value.

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