What Is Private Mortgage Insurance?

Private Mortgage Insurance is a usual requirement of Lenders when the loan to value (LTV), that is the amount of your loan as a percentage of the value of your home, is 80% or less.

It is an effort to make funds available to home buyers with small down payments by protecting the lending institutions from a portion of the financial risk in the event of a loan default.

Should the insured Borrower default on the loan, and the Lender have to foreclose and take the property back, the PMI Company insures the Lender that it will pay the insured amount to the Lender and the PMI Company will then deal with the foreclosed upon house, which is often times in a state of disrepair and may not be worth the amount of money owed on the defaulted loan.

HOW TO GET RID OF PMI

Usually your lender will provide you at closing with information as to when, in accordance with your amortized payment schedule, you are expected to fall below the 80% LTV. This will assume that the value of your house remains the same, and your payments are made in a timely fashion. But we all hope and expect that your house value will increase while your loan value decreases, and you should be able to request a release of the PMI, and the monthly escrow amount that goes with it, as soon as the LTV fall below 80%. You can try to calculate this yourself, and request information from your lender as to how to remove the PMI requirement, or you can go to a free on-line site at PrivateMI.com provided by the Mortgage Companies of America (MICA) for a PMI Cancellation Kit.

The kit contains a step-by-step guide to cancellation of private mortgage insurance, answers to frequently asked questions, sample letters borrowers can use to communicate with their loan servicer, information about the Homeowners Protection Act, and a glossary of industry terminology. The downloaded kit will help you determine whether you are eligible to cancel your PMI.