Financing in Gilroy>Question Details

Marc Perkel, Home Buyer in 95020

Does PMI terminate if my mortgage balance is paid down to less than 78% of my original balance?

Asked by Marc Perkel, 95020 Mon Apr 12, 2010

Do I need an appraisal to remove PMI? I though that I read that when 22% of the original home value is paid off that PMI goes away?

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Steve Ornellas’ answer
Hi Marc,

There is an important distinction to make between Non-FHA and FHA financing in regards to PMI removal.

Non-FHA loans allow for the removal of PMI once the market-based equity in the home reaches 20%. These lenders can require that an appraiser of their choice confirm market value before doing so. You specific loan paperwork will describe the process for PMI removal, or a call to customer support may be in order.

FHA loans are quite different in this respect. With FHA you will have to pay Mortgage Insurance for a MINIMUM of 5 years, and until you have paid your original LOAN AMOUNT down to 78% (not that the loan amount is 80% of current market value, which is typical for non-FHA MI removal). For all but 15-year term mortgages, you will pay MI premiums for the GREATER of five years or until the amortized loan-to-value reaches 78 percent. This "78% or 5-year Rule" before Mortgage insurance can be terminated is covered here: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/fi…

Best, Steve
1 vote Thank Flag Link Mon Apr 12, 2010
But what is the law? I though the law was the 78% gets you out of PMI. I don't give a damn as to what the lender wants.
1 vote Thank Flag Link Mon Apr 12, 2010
In my experience, Marc, mortgage companies have two tracking spreadsheets for your loan, one is the scheduled payments and one is the actual. When you pay on time and the balance becomes 78% then p.m.i. removal automatically happens. An issue arises when you pay extra principal and wish to have the p.m.i. removed before the scheduled 78% month. In this case you will usually have to pay for an appraisal because while your principal balance is not in question the lender wants to know the current market value of your property to show you have indeed reached the majical 78 or in some cases 80% plateu. Most lenders have the guidelines for removal of p.m.i. on their website, in one of your statements or you could call them. Best of luck
1 vote Thank Flag Link Mon Apr 12, 2010
From: http://library.findlaw.com/1999/Oct/1/131370.html

[Quote]

Private Mortgage Insurance And The Homeowner's Protection Act of 1998
By Jacob I. Rosenbaum of Arter & Hadden LLP

The Homeowner's Protection Act of 1998 (the "Act") became effective July 29, 1999. The Act was adopted in response to numerous complaints about lenders not releasing requirements for private mortgage insurance ("PMI") when borrowers built up equity in their property. Currently, industry practices and regulatory requirements require borrowers to purchase PMI in connection with loans having a loan to value ratio ("LTV") in excess of 80% (e.g., there is less than 20% equity in the property). The premium for PMI is paid monthly with borrower's regular payment of principal, interest and escrow amounts. Lenders have not been uniform in their policies about releasing borrowers from the PMI requirement. The release of this requirement has the effect of reducing the borrower's monthly payment.
The Act only applies to single-family residences (but not vacation homes), investment properties and multi-family dwellings. Essentially, the Act requires that a lender must release the borrower from the obligation to purchase PMI when the balance of a loan is reduced to an 80% LTV, if the borrower so requests. When the LTV reaches 78% of the property's "original value", automatic termination is required. Release of the obligation to furnish PMI is not required if the borrower does not have a good payment history. Even where PMI is retained because of the borrower's unfavorable payment history, however, when the loan has been reduced to 50% of the original amount of the loan, and provided the borrower is then current on the loan, the Act requires a final termination of the PMI requirement. Notwithstanding these general rules, there are certain "high risk" loans which are not subject to the Act.

The Act also requires certain disclosures at loan closing. These disclosures differ depending on whether the mortgage is a fixed rate mortgage, an adjustable rate mortgage or a high risk loan. Certain annual notices are required in certain cases. Additionally, notices are required upon cancellation or termination of the PMI requirement and upon denial of termination, whether requested by borrower or automatic.

The Act prohibits any charge or other cost to be assessed against the borrower for compliance with the Act. Regulation Z (Truth in Lending) now requires that the payment schedule required (Section 226.18(g) of Regulation Z) reflect the consumer's PMI payments until the date on which the creditor must automatically terminate coverage under applicable law, even though the borrower may have a right to request that the insurance be canceled earlier.

[End Quote]
0 votes Thank Flag Link Mon Apr 12, 2010
michael russell is correct.
0 votes Thank Flag Link Mon Apr 12, 2010
O.K. sir, google pmi removal law. HPA(homeowners protection act of 1998) comes up. I'm no lawyer so read it.
0 votes Thank Flag Link Mon Apr 12, 2010
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