Private Mortgage Insurance (PMI): When Does It End?

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When a home buyer cannot make a down payment of 20% or more, his mortgage lender will usual require that he purchase private mortgage insurance (PMI).  PMI compensates the mortgage company for its loss if the borrower defaults on the loan.  Private mortgage insurance is expensive and it can last for years.

Prior to lending money to a home buyer, most bank will have the buyer sign a document called the Notice Concerning Private Mortgage Insurance–Initial Disclosure.  This document informs that borrower that a PMI policy is required for the loan.  It also specifies when and how PMI payments end.  Payments end in one of two ways:

1. Requested Cancellation

According to the standardized PMI notice for fixed-rate mortgages,

You have the right to request that PMI be canceled on or after the following dates: 1. The date the principal balance of your loan is first scheduled to reach 80% of the original value of the property.  [The document then give the specific date when this will occur.] or 2. The date the principal balance actually reaches 80% of the original value of the property.

In order to cancel PMI under according to this provision you must submit a written request for cancellation, have a good payment history, and, if requested, provide proof that the value of the property has not diminished and/or certify that there are no subordinate liens on the property.

2. Automatic Termination

If you do not cancel your PMI according to the terms above, then payments will continue for another full years.  The PMI agreement states:

If you are current on your loan payments, PMI will automatically terminate on the date the principal balance of your loan is first scheduled to reach 78% of the original value of the property.

Unless you want to needlessly pay a full year’s worth (or more) of PMI, it’s essential that you track the principal amount of your mortgage and cancel PMI payments as soon as you’re able to do so.

Need legal help?  Contact me at justin@jrmccarthy.com.

 

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