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Private Mortgage Insurance

Private mortgage insurance is insurance for the lender in case you default on your mortgage payments. Many lenders will require that you purchase private mortgage insurance if your down payment is less than 15-20%. The private mortgage insurance cost is added to your mortgage payment each month and can really add up over time. In order to get your private mortgage insurance cost removed from your monthly bill, your lender needs to see that you have accumulated sufficient equity in your house (usually around 20 25%).

When to Consider Getting Your Private Mortgage Insurance Canceled

There are two typical ways that your equity will have reached sufficient levels to cancel your private mortgage insurance. First, and the most obvious, is that youve made enough payments on your mortgage. As you pay over time, your equity amount increases, and at some point the lender will no longer need the insurance and you will be able to remove the private mortgage insurance cost from your monthly mortgage payments.

The second way is when your homes value has increased significantly either due to local property increases or a remodel. However, even if this happens, most lenders will make you wait a period of time to establish that the increase is long-lasting and not temporary.

If You Chose a Higher Interest Rate over Private Mortgage Insurance

If you had a choice to choose a higher interest rate to avoid having to get private mortgage insurance, you vendor is extremely unlikely to cancel it, regardless of your equity increase. You should consider refinancing the home if this is the case.

Canceling Your Private Mortgage Insurance

How you can cancel your private mortgage insurance depends on the terms of the loan and is up to your lender and the insurer, but there are some basic guidelines that apply to houses that were purchased after July 29, 1999 under the Homeowners Protection Act.

  • Ask your lender how to cancel: Write your lender a letter requesting information on general procedures for canceling private mortgage insurance.
  • Get your home appraised: Most lenders will require an official appraisal of your home, so ask your lender who it uses to appraise homes, or who they recommend to use.
  • Calculate your loan to value ratio: Divide your loan by your homes new appraised value to arrive at your loan to value ratio. For example, if your loan is for $300,000 and the home is appraised at $350,000, your ratio would be 85.7%.
  • Compare your loan to value ratio: Many lender require that your ratio be below 80% to cancel your private mortgage insurance. In the above example, most lenders would deny your request to cancel the private mortgage insurance until your ratio dropped below 80%.

If Your Lender Wont Cancel Your Private Mortgage Insurance

Lenders have little incentive to spend time reviewing your file and canceling your private mortgage insurance, so dont be surprised when they seem excessively slow. Make sure you make your requests in writing, and save copies of every letter you send. If your lender refuses or is excessively slow (many months) in canceling your private mortgage insurance, consider taking the lender to small claims court. It will usually not be financially worth it to take them to regular court.

Next Steps
Contact a real estate attorney to help you navigate
mortgages or home equity loans.
(e.g., Chicago, IL or 60611)

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