Private Mortgage Insurance (PMI) is an insurance policy required by lenders when a borrower's down payment is less than 20% of the home's value. The purpose of PMI is to protect the lender in case the borrower defaults on the loan and the value of the home is lower than the outstanding loan balance. PMI is usually rolled into the mortgage payment and can cost $40-$50 per month for a $100,000 home.
Thanks to the Homeowners Protection Act of 1999, lenders are now obligated to cancel PMI when the loan balance reaches 78% of the original amount. However, the law only applies to loans that closed after July 1999. Homeowners can also request to have their PMI removed when the loan balance reaches 80% of the original amount. In cases where the home value has appreciated, PMI can also be removed if the loan balance is less than 80% of the current value of the home.
To determine if PMI can be removed, homeowners can consult a licensed real estate appraiser who can provide the current value of the home. With this information, mortgage companies are often willing to remove PMI, resulting in significant savings for the homeowner. For more information on PMI and the Homeowners Protection Act, visit the links provided.