You may be eligible to save up to a thousand dollars a year by canceling
your private mortgage insurance (PMI). Similar to home or auto insurance,
PMI protects against financial loss. Instead of insuring against a car
accident it insures a lender against a borrower defaulting on a mortgage
loan. The lender can foreclose on the property and file a claim with the
mortgage insurer for some or most of the loss. Typically PMI is required
for borrowers who have a down payment of less than twenty percent.
Homeowners who are typically eligible for cancellation of PMI are those with
a 20% equity level (25% if your mortgage is less than five years old) and
who have a good payment history. A good payment history means that all
payments are current at the time of application for cancellation of PMI, no
payments are more than 30 days late in the last twelve months, no more than
one late-payment penalty in the last twelve months, and no notice of default
recorded against the property.
Industry estimates state that anywhere from 30,000 to 50,000 borrowers
throughout the U.S. could be eligible for cancellation of PMI based on
capital improvements homeowners have made to their property and the high
appreciation of home values in a particular area.
Homeowners looking to cancel their PMI have many helpful resources that will
provide free information and some fee-based services that will research and
cancel PMI for you. The best place to start is a free online service that
will walk you through the calculations to determine if you are eligible to
end PMI. This site also answers the most frequently asked questions about
this process and explains your legal rights. The trade association for
mortgage insurers, the Mortgage Insurance Companies of America (MICA),
sponsors the Web page located at www.privatemi.com. In addition to the cancellation calculator, the
site also offers sample letters to send to your mortgage services to begin
the cancellation process.
If you are eligible for cancellation of PMI you may need a new appraisal of
your home. This depends on your mortgage servicer. Some servicers won't
require the appraisal, but will use broker price opinions or comparative
market analysis, both of which are cheaper than an appraisal. You cannot
order your own appraisal, however. Your servicer will coordinate with an
approved appraiser to appraise your home.
If all of the research and footwork seems like too much work you can also
hire a commercial service to take care of the whole matter for you. These
types of companies should handle all correspondence, escrow account analyses
and disputes with servicers. This generally costs around $500, including
the appraisal. You can perform an Internet search for these types of
companies with the keywords "cancel PMI."
Sources: Kenneth R. Harney, The Washington Post; Myers Internet Services,
www.mortgagefaq.com; the Mortgage Insurance Companies of America (MICA)