Mortgage insurance (MI) provides financial protection to Lenders and Investors in the event a homebuyer defaults on their mortgage. Mortgage insurance does not provide mortgage life insurance which would pay off your mortgage in the event one were to be come disabled or pass on, nor is it homeowners insurance which protects you from loss due to fire, theft or other disaster.
Traditionally Lenders have required a 20% down payment to purchase a home when qualifying for a mortgage. However, with the use of mortgage insurance, homebuyers may purchase with as little as 3% down. Note: there are government loan products that do not require 20% down nor do they have mortgage insurance.
For those homebuyers needing mortgage insurance, there are some updated options that are quite cost effective. Mortgage insurance can be paid monthly, annually or in a lump sum amount up front.
Mortgage insurance has been tax deductible for many homeowners through December 31, 2011, allowing them to save $200-$400 per year. Mortgage insurance premiums paid on or after January 1, 2012, currently are not eligible for this tax break, however, it is anticipated that legislation will be renewed allowing future tax deductions for your mortgage insurance payments. Talk to your tax advisor to confirm what options you have going forward as these deductions apply to loans closed on or after January 1, 2007 and are subject to income limits.
Mortgage insurance may be cancelled when you’ve built 20% equity and have maintained an on-time payment history. Equity may come either through property appreciation or through principal reduction. Federal law mandates that loans closed on or after July 29, 1999, will terminate automatically once the mortgage has amortized to 78% of the original value of the house. Appreciated property equity may be challenged after a minimum of 12-months from closing by an approved Appraiser of your Lender who will determine current market value.
Step by Step Guide to Private MI Cancellation
Answer these simple questions to see if you might qualify for Private MI cancellation:
- Have I paid down my mortgage to 80% LTV?
- Have I made structural improvements that will increase the value of my home?
- Have homes in my neighborhood appreciated significantly in value?
If you answer ‘yes’ to any of these questions, you may be able to cancel your Private MI.
Gather basic information for your loan servicer:
- Your name and Social Security number
- Property address
- Loan number
Contact your loan servicer using the information provided on your monthly coupon or invoice. Be sure to confirm the mailing address, email address or fax number and the contact person’s name for the letter.
Explain to your servicer that you’re interested in canceling your Private MI and request information on their cancellation requirements.
Meet any requirements provided by your servicer. These may include:
- Supplying additional information on your home or loan
- Having an Appraisal, BPO or CMA
Your servicer will arrange for this. If you do it yourself you may end up paying for two appraisals.
Send a request in writing for cancellation of Private MI.
Your servicer will notify you about the status of your Private MI cancellation.
Your 1st step to cancelling mortgage insurance is to contact the current Servicer of your loan to identify their specific requirements for mortgage insurance cancellation and the 2nd step will be to request some form of acceptable appraisal. Your Servicer may require 2 different letters from you. Samples are as follows:
REQUEST FOR CANCELLATION – LETTER
City, State ZIP code
I would like to determine if I’m eligible to cancel my Private MI on loan number (fill in number). The property location is (street address, city, state, zip). Please send me the requirements for canceling Private MI on my loan.
Please contact me at (your address along with your complete phone number) and let me know the status of this request or if you need further information.
Thank you for your time and help with this matter.
REQUEST FOR APPRAISAL – LETTER
City, State ZIP code
I would like to request than an (appraisal/BPO/CMA) be scheduled for my home (loan number). The property location is (street address, city, state, zip code).
I would like to use the results of this inspection to cancel my Private MI. Based on instructions received by (phone/mail), I am enclosing a check made payable to (servicer name / appraiser name) for the (appraisal/ BPO/ CMA).
Please forward a copy of the (appraisal/ BPO/ CMA) to me at this address.
Thank you for your time and attention.
Neither Lenders nor mortgage insurers want borrowers to pay for Private MI any longer than is absolutely necessary.