When a borrower has to pay PMI, a 15-year mortgage is better then longer-term mortgages because the borrower will reach the 80 percent LTV threshold earlier. The borrower will be able to cancel PMI at this point and not have to pay any more PMI premiums.
Canceling PMI
The borrower has the right to request cancellation of PMI once the LTV reaches below 80 percent on non-high risk loans. LTV will eventually decrease by the borrower's paying down the principal on the loan through mortgage payments, if the fair market value (FMV) of the property appreciates in value, or through a combination of both loan payments and appreciation in FMV. (Note that a full appraisal of the property is usually required to establish FMV.)
To request cancellation of PMI, a good payment history is needed. The lender is not responsible for advising the borrower to cancel PMI. The borrower needs to initiate the request to the lender to cancel PMI.
Automatic Termination
When a mortgage is scheduled to reach 78 percent LTV on non-high risk loans, the lender must automatically terminate PMI on residential mortgage transactions. However, the borrower needs to be current on the loan in order for PMI to be automatically terminated. If the borrower is not current on the loan, the lender must terminate PMI when the borrower eventually becomes current.
If a mortgage is a non-conforming high-risk loan, a lender must automatically cancel PMI when the mortgage is scheduled to reach 77 percent LTV. However, if the borrower is not current on the loan, the lender must terminate PMI when the borrower eventually becomes current.
The following is a helpful chart showing under what circumstances PMI may be canceled automatically:
|
| Loan signed on or after July 29, 1999 | Loan signed before July 29, 1999 |
| Conventional Loans | FHA or VA Loans |
| Borrower has a good payment history | Borrower does not have a good payment history |
| Borrower is current on the loan | Borrower is not current on the loan |
Final Termination
If a mortgage has not otherwise been canceled or terminated for any of the above reasons, a lender must automatically terminate PMI when the loan reaches the midpoint of the amortization period. This means that if there is a 30-year loan (360 months), the chronological midpoint occurs after the 180th month. However, as with all other circumstances for termination or cancellation of PMI, the borrower must be current on the loan for final termination.
If you have any questions regarding Cancellation or Termination of PMI, please contact DSI's Customer Service Department at (800) 649-1362.
DSI's Compliance Department invites you to review our other articles on canceling PMI and entering PMI/MMI information in DocMagic:
A borrower has a good payment history if the borrower has not made a payment that was: (1) 60 days or more late within the first 12 months of the last 2 years prior to the date borrower reaches the cancellation date; or (2) 30 days or more late within the first 12 months prior to the date borrower reaches the cancellation date.
A non-conforming loan is defined as a loan with an original principal balance that exceeds Fannie Mae or Freddie Mac conforming loan limits.
RSS