PMI Cancellation

When you have PMI, private mortgage insurance, you will not be able to cancel your policy until your have repaid more than 20% of the original mortgage amount. With the finance charges that come out of your payments when you first start repaying the mortgage, you have to realize that it could take as long as 10 or 15 years before you have this amount of equity built up in the mortgage. This is because the payments you make in the early years of a mortgage go mostly in interest with very little being applied to the unpaid balance.

Once you notice that you have more than 20% repaid, you have to send a letter to the lender and the insurance company requesting that the policy be cancelled. Some lenders make this difficult to do because they lost their protection just in case you default on the rest of the loan. There is a law that now requires lenders to automatically cancel the private mortgage insurance on your loan when you reach the 80% mark, but many of them don’t take any steps to do this until you push the matter.

Some lenders make this out to be a long drawn out process and you have to keep at it. You do need to keep a copy of all correspondence, including the annual statements you receive regarding the details of your repayment to prove that you have indeed paid off the required amount.

The process can take several months and if you make an annual payment that is made in advance, you can receive a refund of the unused portion of the premiums, provided that you have a refundable policy. With a refundable PMI, the unused balance of the premium comes back to you because it is your money. It doesn’t matter if the process does take a few months because once the insurance company receives your request for cancellation, your refund will be dated back to this date. If, however, you have a non-refundable policy, you have to make sure the process gets started as soon as possible because you will not receive any refund.

The first stage of the cancellation process is to make a written request to the lender for the cancellation process to begin. You need to ask the lender to verify that you have repaid the correct amount of money to qualify for the cancellation. If you are renting the property and are not living in the home yourself, the lender can raise the amount of repayment to 30% because of the risks involved in renting a mortgaged property. The lender might also look at your payment history to see if you have missed any payments or if any of them were made past the due date. This could affect the status of the cancellation of the policy because of the risk that you may default on the loan.

Even if you have made a lump sum payment during the first year of the mortgage to bring down the unpaid balance below the 80% mark, the lender may require you to wait a little longer. This, of course, is in the best interest of the lender because you are actually paying for the lender’s protection so that he/she is assured of getting his money repaid. It is in your best interest to be able to cancel the policy as soon as possible so that you have more money to put on the mortgage, invest or make some other purchase for the home.

The cancellation of the policy depends on where you live. Some states require the lenders to notify the borrower when the balance of the mortgage goes below 80% and others do not.