Understanding Private Mortgage Insurance

Five things to know about PMI

Dec. 17, 2012

By SCOTT J. WILSON Los Angeles Times - McClatchy-Tribune Information Services

If you're getting a home loan, the lender may require you to pay for private mortgage insurance, or PMI. Here are some key things to know about PMI and how to get rid of it:

--PMI is typically required by lenders on mortgages in which the borrower is making a down payment of less than 20 percent. It is designed to protect the lender in case the borrower defaults. On a loan of $250,000, PMI may cost you $50 to $220 per month, depending on the size of the down payment and the length of the loan.

--Once you've made enough payments to boost your equity to 20 percent of the original purchase price, you can ask your lender to cancel PMI. By law, the lender must cancel PMI at this point as long as you have a history of on-time payments, you can establish that the property value has not declined and there is not a subordinate lien -- such as a home equity loan -- on the property.

--If you can't get PMI removed at the 20 percent level, it gets easier once you reach 22 percent equity (based on the original purchase price). At that point, the lender must automatically cancel PMI as long as you are current on your payments. For certain loans defined as "high risk" by the lender, you must wait until you reach 23 percent equity.

--If you're unable to get PMI removed by either of the above steps, the lender must cancel it once you are halfway through your loan term, provided you are current on your payments.

--The PMI cancellation rules, as defined in the federal Homeowners Protection Act, apply to mortgage loans made since July 29, 1999. But they do not apply to loans made by the Federal Housing Administration or Veterans Administration. If you have a problem with a lender over PMI cancellation, contact the Federal Trade Commission and your state's attorney general.