Home Mortgage Insurance Cancellation
Home mortgage insurance cancellation happens in the following cases:
- Home mortgage insurance must be automatically cancelled when the Loan To
Value ratio or LTV reaches 78% or less of the original value of the
property. If you buy a house for $100,000 with 5% down, your LTV
is 95% and your mortgage is $95,000. You will be paying something around
$62 in PMI until your mortgage balance falls to $78,000 or 78% of the original
$100,000 purchase price. See
private mortgage insurance page in the bottom for more mortgage
insurance rates and an example.
- You can request PMI cancellation when the mortgage balance reaches
80% of the original value, or in other words your LTV is at 80%. You
must be current on your mortgage with clean mortgage history. This
means that no payment was 30 days or more past due in the previous 12
months and no payment was 60 days or more past due in the previous 24
months.
Let's clarify the "original value". In example
above, you have $95,000 mortgage. You have to pay off another $15,000 so your balance becomes $80,000 and
LTV reaches 80 percent. At this point, you can request bank to
cancel PMI. $100,000 you paid, will be the "original value". Bank still may or may
not require an appraisal - see next bullet point.
You can
refinance your home to eliminate home mortgage insurance. Your home needs to
appreciate enough. It can happen simply because of improved market
conditions or, if you make home improvements that raise your house
value. When you refinance, the
new appraised value will become the "original value".
- Lender will likely require new appraisal to check if the property
value has not declined since the time of the original settlement. How
the current value is determined, must be disclosed to the homeowner in
advance.
- The lender must provide a disclosure to the homeowner at the time of
closing describing these cancellation rights. Additionally, the lender
is required to disclose this information annually to the homeowner.
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