Table of Contents
Private Mortgage Insurance (PMI) is a type of insurance required by lenders when a homebuyer makes a down payment of less than 20% of the home’s purchase price. PMI protects the lender, not the borrower, in case of default. Understanding when you can request PMI cancellation can save you money over the life of your mortgage.
When Is PMI Typically Cancelled?
Most lenders are required to automatically cancel PMI once your mortgage balance drops to 78% of the original purchase price or appraised value. This is based on the Homeowners Protection Act of 1998, which provides specific guidelines for PMI cancellation.
How to Request PMI Cancellation
To request PMI cancellation, you generally need to:
- Make sure your mortgage balance is at or below 80% of the home’s original value.
- Have a good payment history with no late payments in the past year.
- Request a formal cancellation from your lender, often by submitting a written request.
Additional Tips for PMI Cancellation
If you believe your home’s value has increased significantly, you might be able to request PMI cancellation earlier than the standard timeline. This process is called a “request for good faith estimate” or “request for appraisal,” and lenders may require an appraisal to confirm the current value.
Important Considerations
Remember that some loans, like Federal Housing Administration (FHA) loans, have different rules for mortgage insurance. Always check your loan agreement and consult with your lender to understand the specific requirements for your mortgage.
By staying informed and proactive, you can reduce your mortgage costs once you meet the criteria for PMI cancellation. Regularly monitoring your loan balance and property value can help you take advantage of this benefit as soon as possible.