September/October 2001

Cancel Your PMI

BY PAULA ARNETT

If you purchased your residence with a mortgage that exceeded 80 percent of the purchase price, your lender probably insisted that you pay monthly Private Mortgage Insurance (PMI) premiums to protect the loan from foreclosure loss. If you obtained your PMI mortgage after July 1999, federal law requires your lender to inform you when your loan balance reaches 78 percent of its original amount so that your PMI can be cancelled. Depending on your loan’s interest rate, this would take most borrowers 10 to 15 years, but many loans are refinanced or the property is sold earlier.

Given the rate of property appreciation during the last two years, most properties should have more than 20 percent home equity after approximately four years. Contact your loan servicer to find out if Fannie Mae or Freddie Mac (who have easy cancellation rules) owns your loan. If you have made your mortgage payments on time and if your loan is at least two years old, Fannie Mae and Freddie Mac have instructed their loan servicers (who are often the loan originators) to cancel PMI when the loan-to-ratio value drops below 80 percent.

Contact the loan servicer to find out how you cancel your PMI monthly premiums because you believe your property to have a loan-to-value ratio below 80 percent. They should give you names and phone numbers of local appraisers who are on the “approved list.” Contact one who is familiar with the Sheffield neighborhood, pay the appraisal fee, and you should save your monthly PMI fee. Or you might want to refinance instead; in that case, contact your mortgage loan officer.

*Data compiled from the Multiple Listing Service of Northern Illinois.