Private
Mortgage Insurance - New Jersey
What is PMI?
PMI, or Private Mortgage Insurance, is a mandatory insurance fee added to a mortgage payment when the original downpayment was less than 20%. PMI protects the lender against loss if the homeowner stops making mortgage payments. The Homeowner's Protection Act of 1998 enables homeowner's with new loans originated after July 29, 1999 to have their PMI cancelled under certain circumstances
Here's what the law says:
Initial
disclosure - For loans originated on or after July 29, 1999, lenders must
give borrowers a written notice at closing that explains they have PMI
on their mortgage and that they have the right to have it canceled at
a certain point.
·
-
Annual disclosure - Lenders must send borrowers an annual reminder that they have PMI and have the right to request cancellation once they've met cancellation requirements. This requirement applies to all loans with cancelable PMI, not just those obtained after July 29, 1999.
-
Borrower-initiated cancellation - For most loans originated on or after July 29, 1999, a lender must cancel PMI at the request of a borrower whose mortgage balance is 80 percent of the original value of the house. The borrower must be up to date on mortgage payments and have no other loans on the house. The lender must be satisfied that the property value has not declined.
-
Automatic termination - For most insured loans originated on or after July 29, 1999, PMI will be canceled automatically when the mortgage balance is at 78 percent of the original value of the house. The borrower must be up to date on mortgage payments. Otherwise, insurance will be canceled automatically once the borrower becomes current.
Exception: For mortgages defined as high risk, the lender will automatically cancel the PMI at the mid-point of the loan. On a 30-year mortgage, for example, insurance will be canceled after 15 years. Check with your lender about whether your mortgage falls into the high-risk category.
The law does not apply to the government mortgage insurance program run by the Federal Housing Administration and does not cover piggyback loans, which include a second mortgage to cover part of the down payment instead of mortgage insurance. Payments on the second loan cannot be canceled and must be paid in full.
How can Private Mortgage Insurance ( PMI ) be removed?