What is mortgage insurance or private mortgage insurance (MI or PMI)? When you put less than 20 percent down payment or borrow more than 80 percent of the appraised value of your home, mortgage insurance is required in some form or another. There are many types of private mortgage insurance. Borrower-paid and lender-paid are the usual two options. Lender-paid insurance is built into the rate and therefore the rate is higher than monthly mortgage insurance options, but the overall payment is lower. There is no cancellation and you cannot remove lender-paid mortgage insurance. The advantage is that you have a lower rate and more tax deductibility. Monthly mortgage insurance can be terminated. It’s important to understand how it terminates so that you can make sure your payment drops and the monthly mortgage insurance is removed (even though it is supposed to be automatic at a certain point). Below are Fannie Mae’s guidelines for termination of PMI:
If you pay your mortgage on time (a clean mortgage), then termination is automatic. If there are late payments and the mortgage history is as below or more, then PMI does not get terminated (no exceptions).
1 x 30 days (late 1 time over 30 days) delinquent for the most recent 12 months
1 x 60 (late 1 time over 60 days) days delinquent for the most recent 24 months
There are three triggers for PMI termination:
The date the balance is first scheduled to reach or actually reaches 80 percent of the original property value via amortization of the principal amount of the mortgage, which can be between five to 10 years.
The date the borrower actually requests the termination.
The date the PMI actually terminates.
When the borrower submits a written request for termination, the following applies:
One unit primary and second home seasoned between two to five years, the LTV (loan/value) must be 75 percent or less.
One unit primary and second home seasoned over five years, the LTV must be 80 percent or less.
If Fannie Mae’s minimum two-year seasoning requirement is waived due to an improved property by the borrower, then the LTV is 75 percent or less.
A primary two to four unit or an investment one- to four-unit property, the LTV must be 70 percent regardless of the seasoning of the mortgage.
The lender must order an appraisal to confirm the value.
If request for PMI termination is denied, the lender has 30 days to notify the borrower based on the date of either:
The written request from the borrower or the date the appraisal was received.
By Carl Edward Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp. He is a residential financing expert and a deal maker with over 28 years’ experience. He currently has 170 five-star reviews on Zillow. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com [email protected]