Understanding the Four Ways to Terminate Private Mortgage Insurance

Purchasing a new home is an exciting milestone in life. However, the process of obtaining a mortgage and understanding its terms and conditions can be overwhelming. One condition may include purchasing private mortgage insurance (PMI). PMI protects the lender in the case the homebuyer fails to pay. PMI is required when your down payment is less than 20% of the sales price, or in refinancing, when the amount financed is greater than 80% of the appraised value.

When you reach 20% equity in your home, the PMI is cancelled. Here are 4 ways you can terminate PMI:

• Borrower cancellation –The mortgage servicer must take action to cancel PMI on the cancellation date or any later date that the once you’ve fulfilled all of the requirements including:
• Submitting a request in writing to the mortgage servicer your intent to cancel the insurance;
• Good payment history with respect to the residential mortgage;
• Payments are current as required by the terms of the mortgage; and
• Loan balance falls below 80% of your home’s original value by providing evidence (home sales contract or appraisal).
• Automatic termination - PMI terminates when the borrower makes all required payments for the PMI.
• Final termination – If a requirement for PMI is not otherwise canceled, PMI terminates the first day of the month immediately following the date that is the midpoint of the amortization period of the loan if the borrower is current on the payments required by the terms of the mortgage.
• Treatment of loan modifications – If you and your mortgage company agree to a modification of the terms or conditions of a mortgage, then the cancellation date, termination date, or final termination should be recalculated to reflect the modified terms and conditions of such loan.