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The majority of us need some kind of financing in order to purchase a home. Many homeowners also elect to make monthly payments into an escrow account in order cover property taxes and insurance. The average house payment includes principal and interest, along with the escrow fees due and adjusted each year. However a large number of homeowners pay another charge every month known as “PMI” or Private Mortgage Insurance.
PMI is usually required on conventional loans when the down payment is less than 20% of the loan. PMI protects the bank or lender when a home buyer defaults on their mortgage loan. PMI does not protect the home buyer and is not inexpensive. The average home buyer pays more than $35 per month and some home buyers pay over $100 per month.
If you are paying PMI you want to be aware of the laws that establish rights for homeowners and rules for lenders regarding private mortgage insurance (PMI) cancellation. Understanding how PMI works may help homeowners eliminate premiums they may be paying unnecessarily.
PMI often enables a borrower to purchase a home with as little as a 3 to 5 percent down payment. This can be great for some people and means they will be able to buy a house sooner and not wait years to save a large down payment. PMI makes it possible for families to live in their own homes sooner but, comes at a hefty price when the math is done.
In the past, the majority of banks and lenders would drop PMI coverage when a homeowner had paid their loan balance down to 80 percent of the property value and maintained a good payment history. However, before 1998 the homeowner was responsible for requesting cancellation of the PIM. Most borrowers were unaware of the possibility of their rights to cancel PIM and had to track their loan balance and know if there was enough equity in order to reach the 20 percent. Home buyers then needed to request their lender discontinue PMI coverage.
In too many cases, home buyers failed to make the request well after they became eligible. This resulted in unnecessary premiums which could range from $250 to $1,200 per year often for several years. With the passage of The Homeowners Protection Act (HPA) of 1998, consumers and lenders share responsibility for how long PMI coverage is needed and established methods to discontinue Property Mortgage Insurance.
If you are making PMI premium payments on your home loan you will want to read my next Blog which will outline the federal laws for homeowners who purchased their home after 1998 and the differences for those who purchased before the passage of this The Homeowners Protection Act.
Related Blog:
- The Homeowner’s Protection Act (HPA) of 1998
- Property Mortgage Insurance (PMI) For Loans Opened Before July 1999.
Glossary of Insurance Terms:
A | B | C | D | E | F | G | H | I | J-K | L | M | N | O | P | Q-R | S | T | U-V | W-Z
Families.com Blogs are for informational purposes only. Families.com assumes no responsibility for consumer choices. Consumers are reminded that it is their responsibility to research their choices properly and speak to a certified insurance professional prior to making any decision as important as an insurance purchase.