Private Mortgage Insurance

1. What is PMI 
Private Mortgage Insurance is insurance to protect a lender if a borrower should default on a loan.

2. When do you need it?
Lenders usually require Private Mortgage Insurance when a down payment is less than 20%. 

3. How does it work?
The premium is determined based on the loan amount, length of the loan and the loan to value ration. It is usually added on to the homeowner’s monthly mortgage payment. If a borrower defaults on a loan, then PMI will insure that the lender will not sustain any financial losses. 

4. Can I cancel PMI?
Once a borrower has at least 20% equity in their home, they can cancel the insurance. Based on The Homeowner’s Protection Act of 1998, the lender is supposed to inform the borrower when they would be eligible to cancel the PMI and how to initiate the cancellation. The borrower might even be owed a refund. Contact your lender for details.

5. Who creates the guidelines for PMI?

The Homeowner’s Protection Act (HPA) of 1998

“Homeowners Protection Act of 1998 – Prescribes guidelines for termination of private mortgage insurance (PMI) for a residential mortgage when the principal balance is reaches 80 percent of the original value of the property securing the mortgage loan. These guidelines cover a variety of areas, including: (1) a mortgagor’s written cancellation request; (2) automatic termination; (3) final termination; (4) no further payments; and (5) return of unearned premiums. It also cites exceptions for high risk loans.”