How To Cancel Your PMI Insurance

PMI, or private mortgage insurance, is usually necessary when a mortgagee puts down less than 20% on the down payment. Private mortgage insurance protects the lender if the mortgagee defaults on the loan but does not protect the borrower. This kind of insurance is expensive and is based on the amount of the mortgage. This insurance is usually dropped once homeowners had achieved 20% equity in their home.

Unfortunately, it became a practice for some lenders in the 1990’s to take advantage of these insurance payments by failing to tell homeowners when they reached enough equity. The homeowners in turn would continue to pay unaware. In 1998, the Homebuyer’s Protection Act passed which required lenders to inform homeowner’s when the equity has reached 20% and to automatically end the insurance when the home equity reached 22%. In cases where home appreciate caused the equity to go above required levels, the HPA does not require the lender to cancel the PMI.

While most lenders will drop the insurance when the threshold is reached, others will still require additional follow up from the borrower. As directed by the HPA, the lender must discontinue PMI within 30 days of the termination or cancellation date. After cancellation, the lender is required to send notification that coverage has been dropped and that no payments need to be made in the future. If your equity has been reached but you are still paying on your PMI, here are some steps to take to ensure proper cancellation.

Make Initial Contact
If you believe you no longer need PMI because you have enough equity built up, contact your mortgage company and confirm what the percentage is for canceling PMI and where you stand. Most lenders require between 20-25%. Whatever information you learn from this call, ask that the lender mail you written confirmation about the equity percentage required on your loan.

Is There An Appraisal Involved?
When you are speaking to your lender, ask if there is a property appraisal required to drop PMI. If there is, ask the lender to send you a list of the appraisers that have been approved and that you might be required to use. If an appraisal is required, note that it will be your responsibility to pay for it and it will generally cost you about $400. Have the appraisal completed. If the appraisal confirms you have reached enough equity, you need to write a cancellation letter and mail it to your lender.

Confirm The Cancellation
Ask your lender where to send a cancellation letter.  The letter you write should be simple and include the following items:

• the current value of your home
• the total amount of your loan
• declaration that you wish to end your PMI

Mail the letter, along with a copy of the appraisal. Send it certified so you’ll be sure that they received it and when. Follow up with your lender when you confirm they received your letter if you do not receive written confirmation in a few weeks. Make sure to keep an eye on your bill to be absolutely sure that your PMI has been canceled and you are no longer paying for the insurance.