Private Mortgage Insurance (PMI) is insurance that borrowers purchase when they mortgage a home for more than 80% of its total value. The insurance is required by the lender for the lender’s benefit and the home owner must pay the premium. There is no benefit to the borrower unless you have the insurance and the premiums are paid and accepted by the lender before putting the property into foreclosure. You would benefit by not having a foreclosure on your credit history. There are regulations for PMI. Two of these regulations have to do with stopping the PMI payment.
As the homeowner you can request that the lender drop the requirement for you to continue to carry PMI once you have 20% equity in the home. You can meet the 20% equity requirement a couple of ways. One way is by getting a current appraisal of the home and including it with your request to the lender for PMI exemption. You would expect the value of your home to increase over time. Most property that is well maintained in an average neighborhood will appreciate. If you have done remodeling on your home since your purchase you might have also increased the value of your home. If you have paid on your mortgage long enough you have paid enough to have 20% equity in the home. At any rate however you reached the 20% equity ratio, you are eligible to request the removal of the requirement for PMI when you can prove 20% equity investment. On the flip side, the Federal Reserve Bank of San Francisco says that lenders can ask for you to submit proof that you home value has not declined or that you have no other liens against the property before they will approve the removal.
The borrower is not the only one who can remove PMI from the property. The lender is required by regulations to remove the PMI when you have met certain conditions. When you close on the property and every year thereafter the lender is required to inform you in writing when you are eligible to drop the coverage. The lender will be automatically dropping the coverage when you have 22% equity in the home if you have a good credit history. The lender will look back up to two years to make sure that you are current on your mortgage and that you have made payments timely. If you were late more than 30 days in one year or 60 days in a two year period you may be penalized by the lender requiring you to carry the insurance until you have invested 77% into the home.
If you are consistently behind on payments and your credit history indicates that you are a high risk of default, then regulations allow the lender to enforce coverage up to a 50% investment in the property. Another reason that the lender can have you remain covered with mortgage insurance is if you have a non-conforming loan. This is a type loan that exceeds the amounts set by the Federal Housing Finance Agency. These limits are adjusted for inflation and the rates vary based on where you live.