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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Private mortgage insurance
Dr. Don,
How do I find out if I am paying PMI on my mortgage? If I am, what
can I do to stop that monthly expense?
Rocio
Dear Rocio,
Most lenders require private mortgage insurance (PMI) on a first
mortgage when the loan represents more than 80 percent of the home's
purchase price or appraised value, whichever is less. The insurance
protects the lender if the borrower defaults on his mortgage but
the borrower pays the insurance premiums.
If you didn't put 20 percent down and this mortgage
isn't a refinancing, then odds are that you are paying PMI premiums.
(FHA
loans have a government administered mortgage insurance program.)
If you can't tell from your monthly statement whether
you are paying mortgage insurance premiums, then review your mortgage
documents or call the originating lender.
The Homeowners Protection Act requires lenders to
cancel PMI policies when the loan balance gets below 78 percent
of the purchase price for homes with mortgages that closed on or
after July 29, 1999. All homeowners, regardless of when their mortgage
closed, can petition the lender to cancel PMI when the loan falls
below 80 percent of its appraised value.
The law also requires lenders to provide an annual
disclosure notice about their procedures for canceling PMI including
the address and telephone number of the mortgage servicing company.
This disclosure notice is sent to all homeowners that pay PMI regardless
of when the loan closed.
This Bankrate
article provides more background on the Homeowners Protection
Act.
-- Posted: Aug. 6, 2001
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