Question
I recently purchased a home and am current on my payments. I paid more than 10% down on my home and have an excellent credit history. Despite that I was required by the lender to purchase Private Mortgage Insurance. That insurance cost me almost $50.00 a month, more than $500.00 per year. Why was I required to purchase this insurance and what can I do to get rid of it?
Answer
Lenders generally require a homeowner to purchase private mortgage insurance (PMI) if they pay less than 20% down on their home. The PMI protects the lender against default when homeowners only have a small equity in their home at the time of the loan. PMI is of little or no benefit to the homeowner. PMI is generally not required when you pay 20% or more down on the home as your equity more than protects the lender should a default occur.

Theoretically a lender should cancel the required PMI once you have made sufficient payments to meet the 20% equity requirement and show your good credit standing. Unfortunately the mortgage company often does not take it upon themselves to have PMI canceled. You may be paying for PMI at this point that is of no value either to you or to the lender, with only the Insurance Company benefiting from your continued payments.

Because of the perceived abuses and/or unfairness of the PMI system congress passed the Homeowners Protection Act of 1998. Under this new law PMI should be terminated automatically once your equity reaches 22% of the property value at the time the mortgage was executed. Furthermore a homeowner can request early termination if you can prove your equity has grown to 20% of the homes current value. Your mortgage company is now required to send you a notice each year telling you how and when your PMI insurance can or will be terminated. Although the terms of this new law apply automatic termination only to mortgages executed on or after July 29th of this year, the general principle that you have a right to cancel PMI insurance once you have reached 20% equity value in your home applies regardless of when the mortgage was incurred. You should review your monthly mortgage payments to determine whether you continue to pay for PMI. If you are paying for PMI, you need to determine whether you have reached 20% equity value in your home. If you have and otherwise have a good credit history on the mortgage you should be able to obtain cancellation of this charge.

If you would like to submit a question please fax directly to Tom Oxford at (409) 866-4196. While we will not be able to answer all questions sent in, we hope to answer those that impact the greatest number of readers.

In reading this article please remember we are providing general answers to broad questions, your individual situation is unique and cannot be dealt with throughly in the space of a newspaper article. When you are facing a serious legal issue, you should always consult with an attorney about your individual circumstances and how they impact the general principles discussed in this article. You should also not hesitate to call Waldman Smallwood at 1-800-833-9151 or contact us online.

Tom Oxford, Attorney
Waldman Smallwood Law Firm, P.C.

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