Cancel Your Private Mortgage Insurance

The Homeowners Protection Act (HPA) of 1998 establishes rules for automatic termination and borrower cancellation of PMI. For home mortgages signed on or after July 29, 1999, the PMI must be terminated automatically. The following conditions apply: 1. There must be 22% or more equity in the property based on the original property value. 2. The mortgage payments must be current.

Cancellation will not occur if the mortgage is:

* High risk * not current within the year prior to the time for termination or cancellation.

Having a lien against the house will also prevent cancellation of the PMI.

If you have reached 20% equity in your house, based on the original property value, you can ask the lender to cancel the PMI. However, the HPA cannot force the lender to grant your request. The lender might be able to get you a lower monthly payment, considering that you are so close to 22%.

Under HPA, if your PMI has not been canceled or terminated, coverage must be removed when the loan reaches the midpoint of the amortization period. On a 30 year loan with 360 monthly payments, the midpoint would occur after the 180th payment. Final termination will occur within 30 days of this date.

Depending on the size of the mortgage, and the risk involved your PMI premium could be $60 a month or more. This represents $720 which you could use to pay down the principal or put to some other good use.

Refinancing, in many instances will change the equity in your house. Ask your lender if it is a requirement for your mortgage. Also ask that more than one quote be provided for PMI.

Check your escrow account to see how much you are paying for PMI. Typically, the rate is about $60 per month per $100,000 of the loan amount. It could be as high as $1,600 on a $200,000 loan. If you would like to have the PMI canceled call your lender and ask how to have the PMI terminated.

In some situations, the lender will insure the loan. His cost is passed on to the borrower through the rate he charges. Usually, the borrower is not aware of the insurance.