Private Mortgage Insurance

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Private Mortgage Insurance (PMI) is insurance that is designed to protect the lender in case the borrower defaults on the mortgage. The insurance is taken out at the time of closing and is paid by the PMI company.

PMI is typically only required if the borrower puts down less than 20 percent when taking out the mortgage.

The borrower then repays the PMI each month along with their mortgage.

Eliminating PMI

Once the principal of the amount is reduced to 80 percent of the original loan value, the borrower can provide a written request for cancellation of PMI. However, the borrower must have a good mortgage repayment history as well as proof of the home’s current value, which can be determined by a professional appraiser at a cost of approximately $375-$500. The equity in the home must have improved so that the loan-to-value ratio is 75% or less.

Federal law also requires mortgage insurance to be canceled automatically when the borrower has paid down their mortgage loan to 78% of the original loan amount.