Can I cancel my Mortgage Insurance (MI)?

Cancelling Mortgage Insurance is a very complicated issue, affected by factors such as:
When the mortgage originated?
Who eventually purchased the mortgage (Fannie Mae / Freddie Mac)?
Has the property value increased / decreased?
Have you made any late payments?
Do you have a 2nd mortgage / equity line?

If you believe your now owe less than 80% of the value of your house and you are still paying Mortgage Insurance, contact a mortgage broker immediately to help you work through this complicated issue.

Mortgage insurance will not be required from your lender once you have paid down the principal balance below 80% of the original sales price or appraised value. Lenders usually require you to be at 78% of the original value and the MI or PMI will automatically be dropped.

Typically the lender will allow the PMI to be released after 12 months and a new appraisal from one of their chosen appraisers if it shows sufficient equity.

You can also find lenders who do not require Private Mortgage Insurance. Many lenders also offer their financing in '2' loans . One 80 percent of the loan, and the remaining 20 as another to avoid paying Private Mortgage Insurance.

Federal law forces most lenders to automatically cancel PMI when a homeowner pays down their mortgage balance to at least 78 percent of the home's original purchase price. Home owners also may apply to have the insurance removed when the mortgage balance is paid down to 80 percent of the original value. In many cases the homeowner is required to pay for a new appraisal.

A No PMI loan may also be obtained to do away with any PMI on your existing loan. Ask your mortgage professional about refinancing today!

PMI, which protects the lender if a home isn’t repaid, was required when you obtained your loan because your loan-to-value ratio (ltv) at the time was greater than 80 percent. When your loan has reached an LTV of 80 percent of less, you may be eligible to cancel your PMI, which would reduce your total monthly home loan payment and save you money.

If you currently pay private mortgage insurance premiums, you may have the right under federal law to cancel the insurance and stop paying premiums. This would reduce your total monthly payment.

You may have the right to cancel private mortgage insurance if the principal balance of your loan is 80 percent or less of the current market value of your home. Under Minnesota law, the value of your property can be determined by a professional appraisal. You need to pay for this appraisal, but in most cases you will be able to recover this cost in less than a year if your mortgage insurance is canceled.

The following notice is provided in keeping with the Homeowners Protection Act of 1998.

If your loan was for a single family home that is your principal residence, was funded on or after July 29, 1999, and you meet certain conditions, you have the right to cancel your PMI when either the principal balance of your loan is first scheduled to reach 80 percent of he original value of your home, or based on actual payments, first reached 80 percent of the original value.

If not previously cancelled, the PMI on your loan will be terminated when the principal balance of your loan is first scheduled to reach 78 percent of the original value of your home, if your loan payments are current. If your payments aren’t current on that date, the PMI will terminate when your loan payments become current.

The definition of “original value” is the lesser of the purchase price or appraised value for which your home was owned by you for less than one year; for all other loans, the original value is based on the appraised value of your home.

If your loan was funded before July 29, 1999, you may, under certain circumstances, be able to cancel the PMI on you loan with the agreement of you lender or in keeping with applicable state law.

No matter when your loan was funded, the cancellation of PMI is subject to conditions.

You must contact your lender to find out what their guidelines are exactly in regards to trying to get your mortgage insurance dropped. Different lenders have different policies on how this is handled. Your personal mortgage profesional, mortgage broker, may be able to help you find the necessary information out. Please consult him/her first to see what they can do for you.

Private Mortgage Insurance premiums are costly. The higher the Loan-to-Value ratio, the more PMI costs. PMI costs cannot be deducted for tax purposes. Although PMI has helped many homeonwers to buy homes they otherwise would not be able to get into, it should always be eliminated as soon as possible either by paying down the loan balance or, if the property has appreciated in value, by way of an appraisal.

Paying PMI initially, can actually get you a lower rate, because of the fact that there is insurance on the loan. Getting an 80/20 loan will most likely have a lower payment to start, but when PMI is removed, it is possible the 80/20 loan will have a higher blended rate.

» DISCLAIMER: The information contained in this article on 'Can I cancel my Mortgage Insurance (MI)?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.