Stop Paying for Private Mortgage Insurance You Don’t Need.
Many folks don’t know that you do not need PMI after a certain thresh hold has been met. Once a certain debt to equity value has been reached a homeowner can request to have their PMI policy canceled.
When to Cancel PMI
So how do you know when to request the cancellation of your PMI policy?
Well there is a few ways to figure it out. To start lets review why PMI or Private Mortgage Insurance is needed in the first place.
PMI is used as a substitute for the “breathing room” or risk reduction a 20% down payment gives a lender. With that in mind it is simple to deduce when a private mortgage insurance or PMI policy should be canceled. The policy should be canceled once the down payment effect of a 20% equity level is reached.
This means that if your home is valued at 100,000.00 dollars you should request the mortgage insurance payments be canceled when your mortgage balance is at 80,000.00 dollars. This would imply that you have a 20,000.00 dollar difference from the lien amount less the Value amount. 20,000 is 20% of 100,000.
Now the exact payment terms and regulations around canceling PMI and the general PMI industry are pretty homeowner friendly.
They are also very detailed and straight forward which is done to keep lenders from acting dishonest which was common practice back in the mid to late 90’s.
These laws and regulations are a fairly new development and were set in place by our policy makers in the late 90’s to help homeowners from unethical billing practices.
The legislation was called the Homeowners Protection Act of 1998 or HPA. The exact schedule of cancellation is explained in that act or law. Make sure you take a look at the exact PMI life cycle schedule as well as what actions and disclosures your lender is required to take by law to ensure that you understand exactly when you can cancel PMI and exactly how you can cancel. Researching with helpful resources such as this finance blog is great but it won’t benefit you unless you put this knowledge into action.