About PMI
What is PMI and how to get rid of it
Home loans are secured by the home being purchased. If the loan is defaulted, the lender risks the amount of the value of the home less the amount outstanding, plus the foreclosure and reselling costs.
Because of the risk lenders usually will only lend a certain percentage of the purchase amount. Usually this is 80%. This keeps the losses from possible loan defaults at a minimum amount.
On loans that require less than the average 20% down payments, the risk of larger losses for the lender need to be offset. This is where the PMI comes in. PMI stands for Private Mortgage Insurance. This policy protects the lender from loan defaults where the defaulted amount is less than the value of the house.
The payment of the PMI is usually included in the mortgage payment, and is often overlooked by homeowners, even after the loan balance has dropped below the 80% loan threshold.
In 1999, the Homeowners Protection Act obligates lenders to terminate the PMI when the loan balance reaches 78% of the original loan amount. Also, this law also states that, if the homeowner requests, the PMI must be dropped when the principal amount reaches 80%, thus giving the homeowner a quicker out of the PMI.
Please note that this law applies to home loans closed or refinanced after July, 1999. Other conditions must also be met. See links at the bottom of this page for further info.
A certified, licensed real estate appraiser can certainly help you with PMI removal. Appraisers know the market in your their area. Many appraisers offer specific services to help customers find the value of their homes and remove PMI payments. Given this information, many lending companies will remove the PMI. The savings will quickly pay for the appraisal.
For more information on PMI and the Homeowners Protection Act, try one of these links:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
Private Mortgage Insurance (PMI): Law Requires Lenders to Cancel PMI