The topic of private mortgage insurance (PMI) is a big one for homeowners and homebuyers alike and there is good reason, namely your wallet. PMI can play an important role for both you and your lender, and making sure you have the right answers is a priority for us.
What is PMI?
PMI is an insurance policy that protects the lender if you are unable to pay your mortgage. It's a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%. Once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.
Top Questions & Answers
As you can imagine, many questions are raised regarding PMI, many of which we've addressed in previous blogs. For this blog, however, we turned to our call center experts. Here are the top two PMI questions of the day:
"I've reached 80% LTV on my mortgage, so why is my lender requiring me to get an appraisal?"
Answer: Even if your loan has reached 80% LTV, your lender is required to obtain an up-to-date value on your property through an appraisal. The lender will order the appraisal and they will receive all documentation directly. If the appraisal confirms your LTV is 80%, your lender will cancel PMI from your mortgage and remove the fee from your future mortgage payments.*
"I've reached 80% LTV on my mortgage. Why hasn't the cost for PMI dropped from my mortgage payment?"
Answer: If you're current on your payments, PMI will automatically terminate on the date when your principal balance is scheduled to reach 78% based on your original amortization schedule. That date should have been given to you in writing on a PMI disclosure form when you obtained your mortgage. You can also proactively request that your lender cancel your PMI when your LTV reaches 80%. Your request must be in writing and meet these additional criteria. Your lender, at this point, will require an appraisal to validate the LTV of your loan.
Likewise, if your home has increased in value, or if you've made extra payments, and you believe your LTV has reached 80%, you can request that your lender cancel your PMI as outlined above.
* If Freddie Mac or Fannie Mae own your loan, it's important to note that you may not be able to cancel PMI if your mortgage is less than two years old — and sometimes up to five. This "seasoning" of your loan is used to assess if your loan has been in good standing for a reasonable amount of time.