PMI

Private Mortgage Insurance (PMI) makes it possible for you to buy a home with less than 20% down by protecting the lender against the additional risk associated with low down payment lending. With this type of insurance, it is possible to buy a home with as little as 5% down. The PMI premium is based on the loan-to-value ratio (LTV) and is a seperate monthly insurance premium collected with your monthly mortgage payment.

Under the Homeowner's Protection Act of 1998 (HOPA), you have the right to request cancellation of PMI when you pay down your mortgage to 80% of the property value at the time the loan was obtained. PMI is to be automatically cancelled when your loan balance reaches 78% of the property value at the time the loan was made.

Although the law does not require a servicer to cancel PMI in the event of an increased property value, borrowers may request in writing that PMI be removed in such circumstances. A new appraisal will have to be ordered by the servicer and paid for by the borrower. In addition to the LTV falling below 80% based on the new appraisal, servicers generally require that PMI has been in place for at least two years and a good payment history has been established for PMI to be cancelled.