The federal Homeowners Protection Act (HPA) governs when Private Mortgage Insurance (PMI) can or will be removed from a loan under certain circumstances. The law provides two ways to remove PMI from your home loan:
Requesting PMI cancellation
Automatic or final PMI termination
You have the right to request that your mortgage company or servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to reach 80% of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received closed on your mortgage. If you can't find the disclosure form, contact your servicer.
You can ask to cancel PMI earlier if you have made additional payments that reduce the principal balance of your mortgage to 80% of the original value of your home. For this purpose, the original value generally means either the contract sales price or the appraised value of your home at the time you purchased it, whichever is lower (or, if you have refinanced, the appraised value at the time of your refinance).
There are other important criteria you must meet if you want to cancel PMI on your loan:
Your request must be in writing.
You must have a good payment history and be current on your payments.
Your lender may require you to certify that there are no other liens (such as a second mortgage) on your home.
Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property hasn't declined below the original value of the home. If the value of your home has decreased below the original value, you may not be able to cancel your PMI.
Even if you don't request to cancel PMI, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78% of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments on the anticipated termination date. Otherwise, PMI will not be terminated until shortly after your payments are brought up to date.
There is one other way you can stop paying PMI. If you are current on payments, your lender or servicer must end the PMI the month after you reach the midpoint of your loan's amortization schedule. (This final termination applies even if you have not reached 78% of the original value of your home.) The midpoint of your loan's amortization schedule is halfway through the full term of your loan. For 30-year loans, the midpoint would be after 15 years.
This standard for ending the PMI halfway through the loan's term is more likely to occur for people who have a mortgage with an interest-only period, principal forbearance, or a balloon payment. Keep in mind that you must be current on your monthly payments for termination to occur.
Loan investors, including Fannie Mae and Freddie Mac, often create their own PMI cancellation guidelines that may include PMI cancellation provisions beyond what the HPA provides. But these guidelines cannot restrict the rights that the HPA provides to borrowers. For example, the HPA does not contain any requirements for a loan's tenure before a borrower may request cancellation or be eligible for automatic PMI termination (known as a seasoning requirement). Note: The rights in the Homeowners Protection Act apply to mortgages related to single-family principal residences that closed on or after July 29, 1999. If you have a Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan, the HPA does not apply. If you have questions about mortgage insurance on an FHA or VA loan, contact us, your Utah mortgage broker.
If you have lender-paid mortgage insurance, different rules apply.