What is mortgage insurance and how can you terminate it?

When you wish to obtain a mortgage to purchase a home, lenders will require you to make at least 20% of the home purchase price as down payment. If you do not have sufficient money to put down the required amount, you can still fulfill your dream of purchasing a house by obtaining mortgage insurance (also known as private mortgage insurance or PMI). So, when you consider obtaining a home loan, you must gather sufficient mortgage information.

You should find out the down payment required and verify if you need to purchase PMI. You can also ask your lender if he can offer you a second mortgage so that you don’t have to obtain PMI. Who has to pay for the mortgage insurance? Mortgage insurance protects your lender against financial loss in case you default on your home loan.

Though the lender becomes the beneficiary, you have to pay the monthly premiums. The premium cost varies with the size of your home loan. You must ask the insurance provider to furnish you with all relevant mortgage information including the cost of PMI. Generally, the cost of the insurance is about half of 1% of your home loan.

How can you end your mortgage insurance payments? Under the Homeowners Protection Act (HPA) of 1998, lenders are required to terminate your insurance as so as you attain 22 % equity in your home. You can also ask your lender to suspend PMI billing as soon as you pay down the home loan to a point that it equals 80% of the purchase price or the original appraised value of your home, whichever is less.

You can get all these mortgage information from the Federal Trade Commission (FTC). However, if your PMI is not canceled in these ways, HPA mandates that the coverage must be removed when your loan reaches the midpoint of the amortization period.

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