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How to Stop Paying PMI |
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Private Mortgage Insurance
1. What is PMI
Private Mortgage Insurance is insurance to protect a lender if a
borrower should default on a loan.
2. When do you need it?
Lenders usually require Private Mortgage Insurance when a down
payment is less than 20%.
3. How does it work?
The premium is determined based on the loan amount, length of the
loan and the loan to value ration. It is usually added on to the
homeowner’s monthly mortgage payment. If a borrower defaults on a
loan, then PMI will insure that the lender will not sustain any
financial losses.
4. Can I cancel PMI?
Once a borrower has at least 20% equity in their home, they can
cancel the insurance. Based on The Homeowner’s Protection Act of
1998, the lender is supposed to inform the borrower when they would
be eligible to cancel the PMI and how to initiate the cancellation.
The borrower might even be owed a refund. Contact your lender for
details.
5. Who creates the guidelines for PMI?
The Homeowner's Protection Act (HPA) of 1998
“Homeowners Protection Act of 1998 - Prescribes guidelines for
termination of private mortgage insurance (PMI) for a residential
mortgage when the principal balance is reaches 80 percent of the
original value of the property securing the mortgage loan. These
guidelines cover a variety of areas, including: (1) a mortgagor's
written cancellation request; (2) automatic termination; (3) final
termination; (4) no further payments; and (5) return of unearned
premiums. It also cites exceptions for high risk loans.”
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