Mortgage FAQ
9. What is PMI? Can I get rid of the PMI on my loan?
PMI, or Private Mortgage Insurance, is almost always required when you are buying a house with less than
20% down. This insurance protection is provided by private mortgage-insurance companies to help protect
lenders against the costs of foreclosure. With mortgage insurance, lenders are able to accept lower down
payments than they normally could. In effect, mortgage insurance provides what the equity of a higher down
payment would provide to cover a lender's losses in the unfortunate event of foreclosure. This means that
without mortgage insurance, your chances of buying a home without a 20% down payment are much smaller.
PMI's cost increases as your down payment decreases. Example: The cost of PMI on a 10% down payment is less
than the cost of PMI on a 5% down payment. Normally, your PMI premium is added to your monthly mortgage payment.
When the private insurance coverage is cancelled does not depend solely on the degree of your equity in the home.
The lender, along with any investor who may have purchased an interest in the mortgage, has the final say on when
to terminate a private mortgage-insurance policy. Usually, the lender will allow the mortgage insurance to be
cancelled when the loan is paid down to 80% of the original property value. Some lenders may require that you
pay PMI for one or two years before you can apply to cancel it.
Contact your lender to cancel the PMI on your loan. An appraisal will usually be required to determine the value
of your property. The cost of this appraisal will most likely be your responsibility. You can also cancel the PMI
on your loan by refinancing and opening a new loan without PMI.
