 |
Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
PMI refunds
Dear Dr. Don,
About a year ago I purchased my first
home. During the buying process I thought I heard the Realtor say
something about a PMI refund after a few years, of course depending
on the difference between the purchase price and loan balance. Others
have said it is like normal insurance and not refunded. Can you
tell me if this is true?
Thanks,
Craig Coverage
Dear Craig,
You cannot get a refund of your private mortgage insurance
premiums unless the premiums were collected after the point where
the lender was required to cancel the policy under the terms of
the Homeowners Protection Act of 1998. This is considered a refund
of unearned PMI premiums.
However, the Homeowners Protection Act of 1998
requires the lender to cancel PMI when your loan balance is less
than 78 percent of the home's market or appraised value at closing.
Homeowners are allowed to petition the lender to request cancellation
when the loan balance is 80 percent of the home's market or appraised
value at closing.
The mandatory cancellation provisions in the
law are for loans that closed after July 29, 1999. For all loans,
including loans that closed prior to July 29, 1999, lenders are
required to provide annual notification to homeowners about how
they can request cancellation of their PMI policies.
What the HPA doesn't address is any price appreciation
in your home's value over time. PMI exists to protect the lender
from taking a financial risk if they have to sell your loan in foreclosure.
When the loan represents less than 80 percent of the home's appraised
value, the lender is facing minimal risk. But to get your PMI canceled
-- because of a combination of price appreciation and paying down
principal -- requires the agreement of the lender.
Most people have a pretty realistic idea of
what their homes are worth. Don't spend $300 or more on an appraisal
if you don't think the loan balance will turn out to be less than
80 percent of the expected appraised value. Don't hire an appraiser
without making sure the bank will accept the appraisal as the basis
for canceling your PMI policy. It's critical to understand what
your lender's requirements are when trying to cancel PMI based on
your home's appreciated value.
When your loan-to-value is less than 80 percent
of the appraised value and it makes economic sense to refinance
the home, you can also get out from under PMI by refinancing.
Use Bankrate's refinancing
calculator to see if it makes economic sense to refinance your
loan.
-- Posted: Feb. 13, 2002
|
