Jane Dotson
Private Mortgage Insurance (PMI) is a surcharge that adds to your monthly mortgage payment. It is designed to protect lenders against losses if borrowers stop making payments. The amount of your monthly PMI payment depends on your credit score and down payment, but generally, it ranges between 0.3% and 2% of the original loan amount each year. If you want to remove PMI from your Bank of America loan, you must have a good payment history and be current on your loan. You can request PMI cancellation when the principal balance on your mortgage loan is scheduled to reach, or actually reaches, 80% of the original value. This date should be listed in your closing documents.
| Characteristics | Values |
|---|---|
| When to remove PMI | When the loan balance falls below 80% of the original value of the home |
| How to remove PMI | Contact the loan servicer |
| When the lender is required to cancel PMI | When the loan balance reaches 78% of the original value of the home |
| When the lender may cancel PMI | When the loan is in good standing |
| When the lender must cancel PMI | When the loan reaches the midpoint of the amortization schedule |
| When the lender may not cancel PMI | When the property value has declined |
| When the lender may cancel PMI early | When the value of the home has increased due to home improvements or current market activity |
| How to avoid PMI | Make a down payment of at least 20% of the home's purchase price |
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What You'll Learn
Understand the purpose of PMI
Private Mortgage Insurance (PMI) is a type of insurance that protects the lender in the event that the borrower defaults on a home loan. It is required when the borrower takes out a conventional loan with a down payment of less than 20% of the purchase price. PMI is designed to compensate for the extra risk assumed by the lender when extending a larger loan with a lower down payment. The cost of PMI depends on several factors, including the size of the mortgage loan, the down payment amount, and the borrower's credit score. Generally, PMI rates are lowest for credit scores of 760 or above.
PMI is not required for all types of mortgages and there are alternative loan options available that do not require PMI. For example, government-backed loans such as FHA or USDA loans do not require PMI, but they have their own associated fees. Additionally, some lenders offer conventional loans with smaller down payments that do not require PMI, but these usually come with a higher interest rate.
PMI can be paid through different methods, including monthly payments, upfront payments, or a combination of both. The monthly payment option is the most common, with the PMI premium added to the borrower's monthly mortgage payment. However, upfront payment may be made at closing, as shown on the Loan Estimate and Closing Disclosure.
It is important to note that PMI does not protect the borrower from facing foreclosure or experiencing a decrease in their credit score if they fall behind on mortgage payments. The purpose of PMI is solely to safeguard the lender's interests.
To summarise, PMI is a tool that enables lenders to take on riskier loans by providing them with protection in case of borrower default. While PMI increases the cost of the loan for the borrower, it also helps borrowers qualify for loans they might not otherwise obtain.
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Know your rights
Private Mortgage Insurance (PMI) is a type of insurance that is required when homebuyers cannot meet the 20% down payment threshold. It is designed to protect lenders against losses if borrowers stop making payments. The cost of PMI is between 0.3% and 2% of the original loan amount each year, which is paid monthly on top of mortgage interest.
You have the right to ask your servicer to cancel PMI once your loan-to-value (LTV) ratio falls below 80%. This means that you have paid down your mortgage to a point where you now own 20% equity in your home. You may submit a written request to have your mortgage servicer cancel your PMI.
Your servicer is legally required to grant your request as long as you meet certain criteria. You must provide evidence, such as an appraisal, that the value of your property has not declined below the original value of the home. Additionally, you must be current on your payments for PMI to be cancelled.
If you do not make a request, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78% of the original value of your home, as long as your payments are up to date. This is also the midpoint of your loan's amortization schedule.
It is important to note that mortgages through the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) have different requirements for removing PMI. If your lender is paying for your mortgage insurance, different rules may also apply. Always refer to your Mortgage Insurance Disclosure for details on how to remove PMI.
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Provide evidence of property value
Private Mortgage Insurance (PMI) is a surcharge that adds to your monthly mortgage payment. It is designed to protect lenders against losses if borrowers stop making payments. The amount of your monthly PMI payment depends on your credit score and down payment, but generally, it ranges between 0.3% and 2% of the original loan amount each year.
You can request to cancel your PMI when your loan balance falls below 80% of your home's original value. This date should appear on a PMI disclosure form provided by the lender. You can also request cancellation if you can provide evidence, such as an appraisal, that the value of your property hasn't declined below the original value of the home. An appraisal usually costs a few hundred dollars, but some lenders might accept a broker price opinion, which is cheaper.
If you don't request cancellation, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78% of the original value of your home. For this to happen, you need to be current on your payments. Your lender or servicer must end the PMI the month after you reach the midpoint of your loan's amortization schedule, even if the principal balance hasn't reached 78%.
If your loan has an FHA or VA mortgage, different rules apply. Contact your servicer for more information.
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Contact your loan servicer
Contacting your loan servicer is a crucial step in removing Private Mortgage Insurance (PMI) from your loan. Here are some detailed instructions on how to go about it:
Understanding the Criteria for PMI Removal:
Before reaching out to your loan servicer, it's important to understand the criteria for removing PMI. Typically, you can request PMI removal when your loan balance falls below 80% of your home's original value. This original value is either the contract sales price or the appraised value of your home when you purchased it, whichever is lower. If you've refinanced your loan, the original value is the appraised value at the time of refinancing.
Gathering Necessary Documentation:
To support your request for PMI removal, you'll need to provide documentation that proves your loan balance has fallen below the 80% threshold. This could include loan statements, payment records, or a new appraisal that reflects the current value of your property. Ensure that your payments are current and in good standing, as this is usually a prerequisite for PMI removal.
Making the Request:
Understanding the Response:
Your loan servicer is legally required to grant your request for PMI removal as long as you meet the criteria. They may have specific processes or forms for handling such requests, so follow their instructions carefully. If your request is approved, confirm with them when the PMI will be officially removed from your loan. This confirmation ensures that your monthly payments will no longer include PMI charges.
Following Up:
If you don't hear back from your loan servicer or encounter any delays in the process, don't hesitate to follow up. Stay in communication with them to ensure your request is being processed. If you encounter any issues or have concerns, you can also seek guidance from financial regulatory bodies, such as the Consumer Financial Protection Bureau (CFPB), which can provide additional support and ensure your rights as a borrower are protected.
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Discuss with your loan advisor
Private Mortgage Insurance (PMI) is an additional fee calculated as a percentage of your loan balance, added to your monthly payment. It is designed to protect lenders against losses if borrowers stop making payments. The amount of your monthly PMI payment depends on your credit score and down payment, but it generally ranges between 0.3% and 2% of the original loan amount each year.
If you have a conventional mortgage loan, you can request to cancel your PMI when your loan-to-value (LTV) ratio reaches 80% based on actual payments or the initial amortization schedule and initial appraised value. You must also meet the following criteria:
- Your loan payments are current and in good standing.
- You can provide evidence (e.g., an appraisal) that the value of your property hasn't declined below the original value.
- There are no subordinate liens, such as a second mortgage.
Your loan advisor can help you understand the specific requirements and process for removing PMI from your loan. They can also discuss alternative options if you have a government-backed mortgage loan, such as a Federal Housing Administration (FHA) or Veterans Affairs (VA) loan, as these loans have different rules for PMI removal.
Additionally, there are ways to get rid of PMI ahead of schedule, such as refinancing, reappraisal, or paying down your mortgage faster. Your loan advisor can provide guidance on these options and help you evaluate their potential benefits and risks.
Remember, it's essential to carefully consider your financial situation and seek professional advice before making any decisions regarding your loan.
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Frequently asked questions
PMI stands for Private Mortgage Insurance. It is an additional fee, calculated as a percentage of your loan balance, that is added to your monthly payment. It is usually required when a home buyer pays less than 20% of the home's purchase price as a down payment.
If you have taken a conventional conforming loan, which is the most common type of mortgage, you will likely have to pay PMI. These loans are made by private lenders and meet criteria set by Fannie Mae and Freddie Mac.
You can request to cancel your PMI when your loan balance falls below 80% of your home's original value. You can also ask for it sooner if your balance hits 80% and you are in good standing with your payments. Your lender may require evidence that the value of your property has not declined.
Federal law requires mortgage lenders to automatically cancel PMI when the balance of the mortgage drops to 78% of the home's purchase price, or when the loan term is at its halfway point, whichever comes first.
