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Late Mortgage Payments Sabotage PMI Cancellation By Mark Walters

There's something you should know about PMI!

Private mortgage insurance is commonly referred to as PMI. If a buyer makes a down payment of less than 20% of a home's value the lender will insist that a premium for PMI be added to every monthly payment.

Statistics prove that the more money a buyer has invested in a home the less likely they are to default on mortgage payments. With less than 20% down lenders want added security for the loan and so PMI was developed. Nice for lenders... expensive for borrowers.

The federal Homeowners Protection Act of 1998 mandates two ways to cancel PMI.

1. When regular monthly payments have paid down the loan balance to less than 78% of the ORIGINAL APPRAISED value of the home. Current appraised value does not count even if the value of your home has doubled.

2. If you pay an extra amount over and above the monthly payment so that the loan balance falls below 80% of original value.

The act excluded FHA loans made before 2001. Mortgage insurance on those loans can never be canceled.

What if you bought a home in Southern California and the value shot up 40% during a ten month period? That's not covered in the Homeowners Protection Act, but most lenders will listen to a request to cancel the PMI... but not during the first two years of the loan.

After two years the lender will require that the value of the home has increased to the point where the loan is 75% or less of the potential selling price. Then they may release the buyer from PMI premiums. You must ask!


Many homeowners make a huge mistake when they are late with mortgage payments. If you have a poor payment history the lender is not required to lift the PMI. You will be out a huge amount of money... over many year as you continue to make those PMI payments... even though your loan balance is well within the lenders normal limits.

PMI makes it possible to buy a home with a small or no down payment, but don't be fooled. It is very expensive and every homeowner should do what's necessary to get rid of it as soon as possible.

Mark Walters is an investor-entrepreneur helping other investors from his Web pages at http://www.Lease-Option-Sub2.com

See Also:

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Ending Your Private Mortgage Insurance Early
Private mortgage insurance, or PMI, is the safety net of the lender. PMI benefits lenders because it guarantees payment on the balance of loans not covered by the sale of foreclosed properties.If a borrower makes a down payment of 20% of the cost of the home, the lender can generally trust that he ... more...

Private Mortgage Insurance (PMI)
If your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain private mortgage insurance, known as PMI, with your lender. This will enable you to obtain a mortgage with a lower down payment because your lender is now protected against any default on ... more...

Private Mortgage Insurance Basics
Will you be asked to pay Private Mortgage Insurance, or PMI? Most lenders will require you to carry PMI if you cannot put 20% or more of your loan amount forward as a down payment. PMI protects the LENDER in case you default on your payments. PMI does not protect you, the borrower. The lender will ... more...

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