What Is Private Mortgage Insurance? | Rubén J. Padrón, PA

What Is Private Mortgage Insurance?

July 10, 2019

Private mortgage insurance exists to protect your lender in the event you default on your mortgage payments. In most cases, a lender will require you to purchase PMI if you put down less than 15 or 20 percent on your home purchase. The PMI cost then gets automatically added to the amount you pay on your mortgage each month.

Over the course of time, these PMI payments can really begin to add up, so you’ll want to get those costs removed eventually. To do that, your lender will likely require you to have reached a certain amount of accumulated equity in your home, probably in the area of 20 to 25 percent.

As you make your mortgage payments, the equity you have in your home increases, so the best way for you to get to the point where you can remove your PMI payments is to just keep making timely mortgage payments each month. However, if your home’s value has increased significantly because of remodels or a reassessment, lenders might be willing to remove your PMI if it’s able to be established that the increase is a long-term change. It may be helpful to consult a real estate lawyer in Miami, FL if you’re interested in learning more about this process.

The steps you take to cancel your PMI vary based on the terms of your loan, and ultimately it’s up to your lender and insurer. However, here are some guidelines that exist under federal law via the Homeowners Protection Act:

  • Ask your lender: Your first step should be to get in touch with your lender and request information about how you can cancel your PMI payments. They should be happy to provide you with information about this, as well as determine whether you’ve accumulated enough equity.
  • Get an appraisal: Lenders may require an official appraisal of your home before they’re willing to cancel PMI payments. You can get recommendations for home appraisers from your lender, as they will have established relationships with home appraisers as part of their mortgage issuance processes.
  • Calculate the loan-to-value ratio: To calculate this ratio, divide your total loan value by the home’s appraised value. The resulting number is your loan-to-value ratio. If you have a $150,000 loan on a home appraised for $200,000, your ratio is 75 percent.
  • Compare that ratio: Many lenders will require your ratio to be below 80 percent for you to cancel your PMI. This means that the value of your loan, minus the payments you’ve already made on that loan, should be less than 80 percent of the home’s value. Most lenders will deny requests to cancel PMI until you get to that point.

Keep in mind that it is not in a lender’s interest to cancel PMI, so you will have to be proactive if you wish to pursue it. Don’t be surprised if they drag their feet in the process. Keep all requests in writing and save copies of correspondence. If the lender refuses or takes an unreasonably long time to cancel, you can take them to small claims court.

For more information about PMI and canceling those payments, contact a real estate lawyer in Miami, FL at the office of Ruben J. Padron, PA.

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