Private Mortgage Insurance Termination

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Private mortgage insurance (pmi) is used when a borrower has less than 20% down or home equity in their property.  PMI insures the lender in the event of a borrower defaulting on a mortgage–it does not provide insurance to the home owner.

With most loans, once the balance reaches 78% of the original appraised value of the home, the private mortgage insurance should automatically terminate.  For example, if you purchased a home for $100,000 with a loan amount of $85,000; once your principal balance is paid down to $78,000; your mortgage insurance will terminate.

You can contact your mortgage servicer (where you make your mortgage payments to) to see if they will cancel the pmi if you feel your home has appreciated enough to have at least 20% home equity.  Factors they will consider are the current value of your home and if you’ve made your mortgage payments on time.   Do not order an appraisal to determine your property value until you have contacted your mortgage servicer (who you make your mortgage payments to).   Your mortgage servicer will have specific requirements for pmi to be canceled early.  For more information on canceling private mortgage insurance, click here.

FHA mortgage insurance cancels automatically after 60 months of mortgage payments AND the principal loan balance reaches 78% of the original home value on loans where the FHA Case Number is issued before April 1, 2013.  FHA mortgages with case numbers issued April 1, 2013 and later will not have the ability to have the annual mortgage insurance removed.

Related post:

Canceled PMI…Reinstated?

Private Mortgage Insurance Helps Home Owners at Risk

NOTE: This post was updated February 26, 2013 regarding FHA mortgage insurance.

Comments

  1. Great article. I didn’t realize PMI would automatically terminate. Thanks, Rhonda!

  2. Thanks, Christy. I still would not rely on the termination of the PMI 100%. Always look out for your own financial best interest.

    I had a friend who’s PMI was actually reinstated–I have a link to that article at the bottom of this post.

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