When homeowners borrow more than 80 percent of a home's value, mortgage lenders often require a corresponding insurance policy called Private Mortgage Insurance. PMI provides a cash payment to lenders in the event that a homeowner defaults.
But, because PMI policies are designed for high LTV loans only, they usually contain cancellation options for when home equity percentages reach 20 percent or more.
In other words, PMI can be temporary.
There is a caveat, however: Lenders will not automatically remove mortgage insurance when LTV falls below 80 percent -- the onus is on the homeowner to initiate a formal request.
Earlier this decade -- when home values were soaring -- many PMI-paying homeowners recognized their equity growth and successfully petitioned out from PMI.
Many other homeowners, however, forgot.
So today, as home values stagnate or depress in different U.S. markets, homeowners eligible for cancellation may find that both their home equity, and their right to cancel have vanished.
PMI helps make high LTV loans possible, but there's no reason to pay it longer than necessary. If your current mortgage requires PMI payments and your loan-to-value lurks below 80 percent, contact your mortgage lender to start the PMI cancellation process.
Or, if you're unsure about your home's value and the 80 percent threshold, call or email me anytime and I can help you connect with somebody to give you the answers you need.
