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Ask Dr. Don

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?

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.)

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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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