Section 6 _P.M.I.
doesn't mean "Protect My Interest"
__Overview
by Robert T. Lord
A.
Cancellation of Private Mortgage Insurance (PMI)
If you put less
than 20% as a down payment on a mortgage, you may be required
to have Private Mortgage Insurance (P.M.I.). PMI protects the
lender if you default on the mortgage. The Homeowners Protection
Act of 1998- which became effective in 1999- establishes rules
for automatic termination and borrower cancellation of PMI on
home mortgages. These protections apply to certain home mortgages
signed on or after July 29, 1999 for the purchase or refinance
of a single-family home. These protections do not apply
to government-insured FHA or VA loans.
For home mortgages signed on or after July 29,
1999, your PMI must be terminated automatically when you reach
22 percent equity in your home based on the original property
value, if your mortgage payments are current. Your PMI also can
be canceled, when you request it in writing, when 20% equity in
your home occurs, based on the original property value. This option
also requires that your mortgage payments are current.
One exception in the termination of your PMI
is if your loan is "high risk". A further exception
is if you have not been current on your payments within the year
prior to the time for termination or cancellation request. A third
exception is if you have incurred additional liens on your property.
When these exceptions apply, your PMI may continue.
Keep in mind that even if your mortgage did
close before July 29, 1999, you can ask to have the PMI canceled
once you exceed 20% equity in your home; however, federal law
does not require your lender to cancel the insurance.
On a $150,000 loan with 10 percent down ($15,000)
PMI may cost you $65 a month. If you can cancel the PMI, you can
save $780 a year and many thousand of dollars over the the life
of the mortgage. Check your annual escrow account statement to
find out exactly how much PMI is costing you annually.
B. How to Calculate PMI
Take the loan
amount and multiply it by decimals listed below under the 30 yr.
or 15 yr. column and divide the total by 12. This will result
in your monthly amount for mortgage insurance.
PERCENTAGE OF HOME VALUE
USED IN THE MORTGAGE |
30 Year
|
15 Year
|
| Flex 97 |
0.50
|
0.66
|
| 90.01% to 95.00% |
0.78
|
0.56
|
| 85.01% to 90.0% |
0.52
|
0.26
|
| 80.00% to 85.00% |
0.33
|
0.16
|
Example:
On a $180,000 loan for a home valued at $189,000, which is a 95%
loan to value (LTV),
multiply 0.78 by $180,000 = $1404 (for the year) and divide $1404
by 12 = $117.00 per month.
C. Avoid Private Mortgage Insurance (PMI)
IF YOU CAN…WHEN YOU CAN'T!
- The SubPrime marketplace does not charge
PMI, but the interest rate will be higher.
- Initiate two mortgages (a first and a second
mortgage) at the same time when doing a purchase or a refinance.
These programs are called 80/5, 80/10, 80/15 or an 80/20.
- Refinance when you have a minimum of 20
percent equity in your home when compared to current comparable
home values. This is an excellent time to reduce the term of
the mortgage, achieve a lower interest rate and no longer being
required to pay PMI.
