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Five things to know about PMI

Private mortgage insurance can add $50 to $220 a month to homeowner's costs. Here's how you can get it canceled.

December 16, 2012|By Scott J. Wilson, Los Angeles Times
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  (Nam Y. Huh, Associated Press )

If you're getting a home loan, the lender may require you to pay for private mortgage insurance, or PMI. Here are some key things to know about PMI and how to get rid of it:

• PMI is typically required by lenders on mortgages in which the borrower is making a down payment of less than 20%. It is designed to protect the lender in case the borrower defaults. On a loan of $250,000, PMI may cost you $50 to $220 per month, depending on the size of the down payment and the length of the loan.

• Once you've made enough payments to boost your equity to 20% of the original purchase price, you can ask your lender to cancel PMI. By law, the lender must cancel PMI at this point as long as you have a history of on-time payments, you can establish that the property value has not declined and there is not a subordinate lien — such as a home equity loan — on the property.

• If you can't get PMI removed at the 20% level, it gets easier once you reach 22% equity (based on the original purchase price). At that point, the lender must automatically cancel PMI as long as you are current on your payments. For certain loans defined as "high risk" by the lender, you must wait until you reach 23% equity.

• If you're unable to get PMI removed by either of the above steps, the lender must cancel it once you are halfway through your loan term, provided you are current on your payments.

• The PMI cancellation rules, as defined in the federal Homeowners Protection Act, apply to mortgage loans made since July 29, 1999. But they do not apply to loans made by the Federal Housing Administration or Veterans Administration. If you have a problem with a lender over PMI cancellation, contact the Federal Trade Commission and your state's attorney general.

scott.wilson@latimes.com

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