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Save hundreds by cancelling Mortgage Insurance
Jul 16, 2004

If you make a down payment on home of less than 20% you are often required by lenders to obtain Private Mortgage Insurance (PMI). This secures the loan for the lenders but is an additional payment burden for the homeowner. Previously lenders were not required to cancel the insurance even if the payments eventually exceeded the 20% mark. However the Homeowners Protection Act, which went into effect in 1999 stipulates that the lender must automatically cancel the PMI once the minimum is reached. However this only effects loans signed after July 29, 1999.


You can save Hundreds each year

If you signed your mortgage before July 29, 1999, you can ask to have the PMI canceled once you exceed 20 percent equity in your home. But federal law does not require your lender or mortgage servicer to cancel the insurance.

On a $100,000 loan with 10 percent down ($10,000), PMI might cost you $40 a month. If you can cancel the PMI, you can save $480 a year and many thousands of dollars over the loan. Check your annual escrow account statement or call your lender to find out exactly how much PMI is costing you each year.

Additional provisions in the law

New borrowers covered by the law must be told - at closing and once a year - about PMI termination and cancellation. Mortgage servicers must provide a telephone number for all their mortgage borrowers to call for information about termination and cancellation of PMI. Even though the law's termination and cancellation rights do not cover loans that were signed before July 29, 1999, or loans with lender-paid PMI signed on any date, lenders or mortgage servicers must tell borrowers about the termination or cancellation rights they may otherwise have under those loans (such as rights established by the contract or state law). Next Steps

Some states may have laws that apply to early termination or cancellation of PMI - even if you signed your mortgage before July 29, 1999. Call your state consumer protection agency for more information about your state's rules. Fannie Mae and Freddie Mac, which buy home mortgages from lenders, also may have guidelines affecting termination or cancellation of PMI on home mortgages signed before July 29, 1999. Check with your lender or mortgage servicer, or call Fannie Mae or Freddie Mac, for more information.

Contact your lender or mortgage servicer to learn whether you're paying PMI. If you are, ask how and when it can be terminated or canceled.

Obtain more information on this and other consumer debt topics from the FTC at www.ftc.gov

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