Search

One of the benefits of private mortgage insurance (PMI) is that you can typically cancel it when you build up enough equity in your home.

In fact, the Homeowners Protection Act (more on that below) requires that private mortgage insurance be terminated automatically when you reach 22 percent equity in your home based on the original property value, if your mortgage payments are current. So the easiest way to cancel private mortgage insurance is just to wait for it to happen on its own.

But you can also request your PMI be cancelled a little sooner, at 20 percent equity.

Because mortgage insurance companies like MGIC insure the lender, you must ask your lender (not the mortgage insurance company) to request cancellation. You’ll have to make the request in writing, and your lender may require you to pay for an appraisal to confirm that your property hasn’t declined in value since you purchased it. Ask your lender for more details.

Homeowners Protection Act

(Note: info below provided by the Federal Trade Commission)

The Homeowners Protection Act of 1998 – which became effective in 1999 – establishes rules for automatic termination and borrower cancellation of private mortgage insurance (PMI) on home mortgages. These protections apply to certain home mortgages signed on or after July 29, 1999 for the purchase, initial construction or refinance of a single-family home. These protections do not apply to government-insured FHA or VA loans or to loans with lender-paid PMI.

For home mortgages signed on or after July 29, 1999, your PMI must – with certain exceptions – be terminated automatically when you reach 22 percent equity in your home based on the original property value, if your mortgage payments are current.

Your PMI also can be canceled, upon your request – with certain exceptions – when you reach 20 percent equity in your home based on the original property value, if your mortgage payments are current. One exception is if you have not been current on your payments within the year prior to the time for termination or cancellation. Another is if you have other liens on your property. A third is the property cannot have declined in value from the original value. For these loans, your PMI may continue. Ask your lender or mortgage servicer (a company that collects your payments) for more information about these requirements.

If you signed your mortgage before July 29, 1999, you can ask to have the PMI canceled once you exceed 20 percent equity in your home. But federal law does not require your lender or mortgage servicer to cancel the insurance.