Introduction
If you've taken out a conventional mortgage with a down payment of less than 20%, you're likely paying private mortgage insurance (PMI) premiums. PMI protects the lender if you default on your loan, but it can add a significant cost to your monthly mortgage payments. Fortunately, once you've built up enough equity in your home, you can request to cancel PMI and save money. But are mortgage companies legally required to notify you when you're eligible for PMI removal? Let's explore this question in detail.
What is Private Mortgage Insurance (PMI)?
Private mortgage insurance is a type of insurance policy that protects the lender in case you, the borrower, default on your mortgage payments. If you put down less than 20% as a down payment when you purchased your home, your lender will typically require you to pay PMI premiums until you've built up enough equity in your property.
PMI premiums can add hundreds of dollars to your monthly mortgage payments, making it a significant expense for homeowners. As a result, many borrowers are eager to cancel PMI as soon as they're eligible.
Are Mortgage Companies Required to Notify You About PMI Removal?
The short answer is no; mortgage companies are not legally required to notify you when you're eligible to remove PMI from your mortgage. However, there are specific rules and regulations that govern when PMI can be removed, and mortgage companies are obligated to follow these guidelines.
Under the Homeowners Protection Act (HPA), which was enacted in 1998, lenders must automatically terminate PMI when the principal balance of your loan reaches 78% of the original value of your home. This is known as the "scheduled termination" date.
However, you may be eligible to cancel PMI earlier than the scheduled termination date if you meet certain requirements. According to the HPA, you have the right to request PMI cancellation once you've built up at least 20% equity in your home, based on the original property value.
When Can You Request PMI Cancellation?
To request PMI cancellation, you typically need to meet the following criteria:
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Equity Requirement: You must have at least 20% equity in your home based on the original property value. This can be achieved through a combination of your down payment and principal payments over time.
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Payment History: You must have a good payment history, with no payments more than 30 days late in the past year and no payments more than 60 days late in the past two years.
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Loan Seasoning: Your mortgage must be at least two years old before you can request PMI cancellation.
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Property Value: Your lender may require a current property appraisal to verify that the home's value has not decreased significantly since you purchased it.
It's important to note that these are general guidelines, and your specific mortgage agreement may have additional requirements or conditions for PMI cancellation.
How to Request PMI Cancellation
If you meet the eligibility criteria mentioned above, you can request PMI cancellation by contacting your mortgage company in writing. Your request should include documentation supporting your eligibility, such as a recent property appraisal and proof of your current mortgage balance.
Your lender is required to respond to your request within a reasonable timeframe, typically 30 to 60 days. If your request is approved, the lender must terminate PMI on the date specified in their response or on the date that the borrower becomes eligible for cancellation, whichever is later.
Proactive Steps to Remove PMI
While mortgage companies are not required to notify you when you're eligible for PMI removal, being proactive can help you save money. Here are some steps you can take:
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Monitor Your Equity: Keep track of your mortgage balance and estimated property value to determine when you reach the 20% equity threshold.
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Request an Appraisal: If you believe your property has appreciated significantly, consider getting a professional appraisal to document the increased value.
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Set a Reminder: Set a calendar reminder a few months before you anticipate reaching the eligibility threshold to start gathering the necessary documentation.
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Review Your Mortgage Agreement: Carefully review your mortgage agreement to understand the specific requirements and timelines for PMI cancellation.
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Contact Your Lender: If you're unsure about your eligibility or the process, reach out to your lender for clarification and guidance.
Conclusion
While mortgage companies are not legally required to notify you when you're eligible for PMI removal, understanding the rules and regulations surrounding PMI cancellation can help you save significant money over the life of your mortgage. By monitoring your equity, staying on top of your payments, and being proactive in requesting PMI cancellation, you can take control of your mortgage costs and build wealth through homeownership more efficiently.
Remember, the key is to be proactive and advocate for yourself. Don't assume your lender will automatically cancel PMI when you're eligible – take the initiative and request PMI removal when you meet the necessary criteria. Doing so can result in substantial savings and help you achieve your financial goals faster.