Private Mortgage Insurance Rights and Responsibilities

An often overlooked cost of buying a new home is private mortgage insurance, usually simply called PMI.

The basic idea behind PMI is simple. When a home buyer buys a house with less than 20% of the home’s value as a down payment, the mortgage lender assumes a larger risk. In most cases, the lender will require that the buyer – that’s you – purchase private mortgage insurance that will pay off your mortgage if you default on it.

Because PMI is an added expense for the consumer, the federal government has a number of regulations regarding PMI. There are specific rules that mortgage lenders must follow if you signed (or will sign) a mortgage after July 29, 1999. That’s when The Homeowner’s Protection Act of 1998 (HPA) went into effect. In addition, many states have their own laws regarding private mortgage insurancethat are designed to protect homeowners and save them money.

Like many other things about buying a new home, the rules surrounding private mortgage insurance can be confusing. Here are some answers to commonly asked questions about PMI to help make it a little clearer.
Who has to pay PMI?

Most lenders require private mortgage insurance from home buyers who put down less than 20% of the total value of their home – or conversely, who borrow more than 80% of the total value of their home. This isn’t a hard and fast rule, though. Many lenders are loosening their requirements for PMI to buyers with good credit, or who meet other requirements.

How much does PMI cost?
Usually, the premiums on private mortgage insurance are about .5 percent of your loan total. If you take out a mortgage for $100,000, the PMI premium for the first year will be around $500. On a $200,000 mortgage, you’ll pay about $1,000 for the first year’s premium. Usually, your premiums will be lower each year, since it’s based on the amount that you owe on your mortgage.

When do I have to pay the PMI premiums?
Most lenders require that you pay the first year’s premium at closing, so don’t forget to add it in when you’re figuring out your closing costs. For subsequent years, you’ll pay it along with your monthly mortgage payment.

Do I have to pay for PMI until my mortgage is paid off?
No. The length of time you have to maintain PMI varies from state to state and lender to lender, but you can generally cancel your PMI when you have between 20% and 25% equity in your home. The actual PMI percentage depends on the default mortgage rate in your state. There are usually other requirements as well, such as no late payments in the year before you request cancellation, and no other mortgages or liens against your property.

How do I cancel my PMI?
Under the provisions of the HPA, your lender must automatically terminate your PMI when you’ve paid down your mortgage to 78% of the original purchase price or the appraised value of your home when you bought it, whichever is less, as long as your mortgage payments are current when you reach 78%. If the mortgage was considered a high risk loan, it can be when you reach 77%.

What does my mortgage lender have to tell me?
When you close on your house, you must be informed of:
– the date that you can request cancellation of PMI
– when your PMI will be automatically terminated

Once a year, you must be informed of:
– your right to cancel or terminate your PMI
– a contact address or phone number where you can find out when you can cancel your PMI

When your PMI is canceled, you must be informed that:
– Your PMI has been canceled, and you no longer have private mortgage insurance
– You no longer have to pay premiums for your private mortgage insurance.

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Cheap Mortgage Insurance Is Possible

Cheap mortgage insurance is possible to get but you have to get the quotes for the cover from a specialist instead of taking this valuable protection alongside the mortgage at the time of getting your mortgage. The majority of mortgage insurance payment protection is sold alongside mortgages with the high street lender but this is the dearest way to obtain cover.

Cheap mortgage insurance should be given consideration if you are in full time employment and have monthly mortgage payments to make. If you should find yourself out of work due to suffering from an accident, sickness or through unemployment then you could be left struggling over where to find the money each month to keep the roof over your head.

cheap mortgage insurance

Providing a policy meets your needs then cheap

mortgage insurance

can give you a tax free income each month with which to continue meeting your monthly mortgage repayments. The cover would begin once you had been out of work for a period of time which can be from 31 days but up to 90 days with some providers and the majority of policies are backdated to the day you first came out of work. Policies then continue to payout for up to 12 months and with some providers for up to 24 months which can give great peace of mind and security.
You do have to be aware that cheap mortgage insurance isn’t suitable for all circumstances and there are reasons which could stop you from making a claim and these are usually found in the small print of the policy. Some of the most common reasons which could mean you would be ineligible to make a claim include only being in part time work, being retired or if you suffer from a pre-existing medical condition.

Stick with specialist providers for the cover and make sure that a policy would be suitable for your circumstances before signing for the cover and you would have a safety net on which to fall if you should lose your income.

This was about the Mortgage Insurance.

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