The New York Appraisal Mgmt. Co.                    

PMI Basics

• If the down payment on your new home loan is less than 20% of the total purchase price, insurance is required to protect the lender.
• PMI costs do vary but they are typically calculated at 0.5% of the loan amount for the first years of the loan and reduce as the loan matures.
• PMI is collected by the loan servicing company and passed along to the insurance company.
• PMI removal is based on the payment history and value of the collateral.

According to the Mortgage Companies of America, an industry trade group, over one million home buyers per year received  PMI coverage during each of the last six years.  For more information, go to www.privatemi.com.

Canceling your PMI

Under federal law, private MI on most loans originated on or after July 29, 1999, will terminate automatically once the mortgage has amortized to 78 percent of the original purchase price of the house.   The borrower must be current on all mortgage payments. The lender must tell the borrower at closing when the mortgage will hit that 78 percent mark. 

Private MI has always been the easiest and least expensive way to buy a home with a low down payment. A new federal law makes it even better. It assures consumers that they can enjoy the benefits of private MI knowing that lenders will cancel it when it is no longer needed. 

The law includes two basic consumer protections: 

1. It requires lenders to inform home buyers - both at closing and annually - about their right to request mortgage insurance
   cancellation and how to do it. 
2. It requires lenders to automatically cancel insurance for those who choose not to request it. 
   
   Even without the law, private MI generally is cancelable once the homeowner builds up enough equity in the home. Investors set their own cancellation requirements. The mortgage insurance company does not make the decision to cancel insurance. 
   
   Your lender can provide you with the requirements for canceling insurance. Just contact the company you send your mortgage payments to for details. 
   
   
   How the law works 
   
   The law is designed to demystify the private MI cancellation process. Here's what the law calls for: 
   
   Initial disclosure - For loans originated on or after July 29, 1999, lenders must give borrowers a written notification at
   closing that explains they have private MI on their mortgage and that they have the right to have it canceled at a certain
   point. 
   
   Annual disclosure - Lenders must send borrowers an annual reminder that they have private MI and have the right to request cancellation once they've met cancellation requirements. This requirement applies to all loans with cancelable private MI, not just those obtained after July 29, 1999. 
   
   Borrower - initiated cancellation - For most loans originated on or after July 29, 1999, a lender must cancel private MI at the request of a borrower whose mortgage balance is 80 percent of the original value of the house. The borrower must be up to date on mortgage payments and have no other loans on the house. The lender must be satisfied that the property value has not declined. 
   
   Automatic termination - For most insured loans originated on or after July 29, private MI will be canceled automatically when the mortgage balance is at 78 percent of the original value of the house. The borrower must be up to date on mortgage payments. Otherwise, insurance will be canceled automatically once the borrower becomes current. 
   

Exception: For mortgages defined as high risk, the lender will  automatically cancel the private MI at the mid-point of the loan. On a 30-year mortgage, for example, insurance will be canceled after 15 years. Check with your lender about whether your mortgage falls into the high-risk category. 

This is just an outline of the private MI cancellation law, not legal advice or a legal opinion. Contact your lender for specific information about how the law applies to your mortgage. 

Frequently Asked Questions

 
How do I benefit from private MI? 

Private mortgage insurance makes it possible for you to buy a house with a low down payment and get into a home years sooner than you would otherwise. 

If you're a first-time buyer, private MI helps you get over the biggest hurdle to homeownership: coming up with the traditional 20 percent down payment. 

If you're a trade-up buyer, mortgage insurance allows you to consider a wider range of homes. 

Both first-time and move-up buyers can benefit by putting less money down and keeping cash for other uses: making investments, paying off debt, or paying for home improvements or emergencies. 

Does private MI offer any tax advantages? 

Since interest on consumer debt is no longer tax deductible, the home loan is one of the few areas in which homeowners can still save tax dollars. The larger loan amount that results from a low down payment boosts your tax deductions for mortgage interest. Some mortgage insurance products, including single financed premiums and lender paid mortgage insurance, can help you save even more on your taxes. 

Can I get private MI if I'm refinancing my loan? 

Yes. Refinancing with private MI can increase your financial flexibility.  You can get cash to pay off consumer debt, make other investments, or cover college tuition or medical bills. If you have a piggyback or 80-10-10 loan, you can refinance with private MI and get rid of that second mortgage. 

Can I cancel private MI? 

Yes. Private MI usually can be cancelled when the homeowner builds up enough equity in the home. Under federal law, private MI on most loans originated on or after July 29, 1999, will terminate automatically once the mortgage is paid down to 78 percent of the original purchase price of the house.

FOR MORE INFORMATION, GO TO WWW.PRIVATEMI.COM