There’s a lot of confusion around mortgage insurance attached to conventional loans (not FHA loans which come under different rules). How and when can you get it cancelled?
There are basically 3 ways to eliminate mortgage insurance from your monthly mortgage payment.
- Borrower must initiate request in writing to loan servicer
- Borrower must have an LTV ratio of no greater than 80%
- Borrower may make principal payments that advance the principal balance to 80% of original value
- Borrower must be current on loan and may not have any 30-day late payments in past 12 months, or payments that were 60 or more days past due in the 12-month period beginning 24 months before the later of the cancellation date or the date the borrower requests cancellation
- Servicer can request evidence that the borrower’s equity is not subject to a subordinate lien
- The servicer can require the borrower to provide evidence that the value of the property has not declined below the original value
- Servicer may require the borrower to pay for an appraisal to determine that current value has not declined below original value
- PMI must be automatically cancelled on the termination date. Termination date is defined as the date on which the principal balance is first scheduled to reach a 78% LTV of the original value, regardless of outstanding balance for that mortgage on that scheduled date
- Borrower may not be delinquent on termination date; if delinquent, PMI must be terminated on the first day of the month beginning after the date that the borrower becomes current
- When these conditions are met, PMI must be terminated even if property has declined below original value
- Servicers MAY NOT require an appraisal as a condition of automatic termination
- Borrower MAY NOT make principal reductions to expedite automatic termination; this approach must be done only on a borrower-requested termination
When PMI is not terminated under a borrower-requested termination or an automatic termination, the Homeowners’ Protection Act provides that PMI coverage cannot be imposed beyond the first day of the month following the date that is the midpoint of the amortization period of the loan, if the borrower is current on the loan on such date.
It may make sense for you to check your current interest rate. If rates have decreased and your equity has increased, you can refinance and eliminate mortgage insurance that way, any time. It doesn’t matter how long or short a time you’ve been paying monthly mortgage insurance premiums on your current loan. The key here is equity. Your property value must have increased enough so that you have at least 20% equity in your home.
If your current loan is from when you purchased your home, you’ll have to wait a year before a lender will accept a new value. If your current loan is from a refinance, there is time limit to when you can refinance again and eliminate the mortgage insurance. The key is that your property value must have increased sufficiently to show the required equity.