| Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
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Gary,
I have a problem with my PMI. I have contacted
the mortgage company on four different occasions to talk about canceling it. I
want the extra money to start paying down the mortgage. On call one I was told
it was going to automatically drop that same month so I did nothing. When
several months had passed I called again. This time I was told again it would be
dropped in two months. So again I waited. When several more months had gone by I
called again. This time I was told it would automatically drop when the balance
reached 75%. That was two months ago. Today I called again and guess what, I now
have paperwork I need to fill out, get an appraisal (which I pay for) and then
it should be dropped.
Is this normal or am I just being BS'd again.
I had read for a long time how difficult it is to get them to drop PMI. Now I
know what they mean. What can I do to get it dropped? Are there any rules, laws
or governing bodies I can talk to about this constant run around?
Keith
Keith has a lot of company. Most mortgages
offered with less than a 20% down payment will require PMI (private mortgage
insurance). So a lot of people pay for PMI.
PMI protects the lender if you default on the
loan. It does not protect the borrower. It's fairly expensive insurance and is
calculated based on how big your mortgage is. Your lender can tell you exactly
how much you pay for PMI.
Back in the 90's some lenders were taking
advantage of PMI. They would continue to charge the borrower for PMI long after
they had reached the level of equity necessary to drop it.
Back in 1998 the Homebuyers Protection Act (HPA)
was passed. It required lenders to notify homeowners when they had 20% equity in
their home and terminate PMI when equity reached 22%.
Note that HPA does not require the lender to drop
PMI if home appreciation causes home equity to go above the required levels.
Only if payments cause it to reach that level. But most lenders will drop PMI if
the equity in the home reaches the threshold level.
We won't get into all the different calculations
as to whether you still need PMI. There are plenty of info available on that.
We'll focus on getting PMI terminated when the time is right.
Let's start by going directly to the law. In
section 3, the act pretty clearly defines how a borrower can cancel.
(a) BORROWER CANCELLATION.
A requirement for private mortgage insurance in connection with a
residential mortgage transaction shall be canceled on the cancellation
date, if the mortgagor
(1) submits a request in writing to the servicer that cancellation be
initiated;
(2) has a good payment history with respect to the residential mortgage;
and
(3) has satisfied any requirement of the holder of the mortgage (as of
the date of a request under paragraph (1) for
(A) evidence (of a type established in advance and made known to the
mortgagor by the servicer promptly upon receipt of a request under
paragraph (1) that the value of the property securing the mortgage has
not declined below the original value of the property; and
(B) certification that the equity of the mortgagor in the residence
securing the mortgage is unencumbered by a subordinate lien. |
According to the HPA the lender must drop PMI
within 30 days of the automatic termination date or cancellation. When PMI is
cancelled the lender is required to send notification that there is no PMI
coverage and no further premiums are due.
Now that we know the law, let's see if we can't
create a step-by-step procedure for canceling PMI.
The first step is to contact your mortgage
company and ask some questions. Call them and have them send you the requested
info. You'll want to know three things. First, what is the equity threshold
required to cancel PMI. Usually 20 to 25% depending on who holds the mortgage.
Secondly, you'll want to know if an appraisal is
required. And, if so, are there approved appraisers that you must use. Expect to
pay approximately $400 for the appraisal.
Finally, find out where to send your cancellation
letter. It may be the same address where you send your monthly payment. But, you
want to be certain. So ask.
Once you know that you can go to work. Get the
appraisal done. Assuming that it shows that you are over the threshold for
canceling PMI, write a letter to your lender questing cancellation. It doesn't
need to be fancy. The letter should include the current value of your home, the
amount of your loan, and a sentence saying that you want to terminate PMI.
Include a copy of the appraisal with the letter.
Some might consider it overkill, but sending the
letter via certified mail or overnight service is a good idea. That way you have
positive proof of it's receipt.
Yes, Keith has been jerked around. But, an
appraisal plus a letter (or forms) should put an end to the monthly PMI. And,
using the money freed up to reduce his principal is a great idea!
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