Facts About Private Mortgage Insurance

 

Facts About Private Mortgage Insurance

2021/02/04

Facts About Private Mortgage Insurance - Cancellation Of Private Mortgage InsurancePrivate mortgage insurance is very popular in United States. However, an informed borrower can easily avoid it as well as the premiums associated with it.

Private mortgage insurance or PMI is additional insurance required by the lenders from the homeowners if they offer over 80% of the value of home.

In other words, if mortgage loan offered by lender is more than 80% appraised value of home, borrower is asked to provide private mortgage insurance. Private mortgage insurance plays in important role in the protection of lender against apparent losses.

If, due to any reason, a borrower defaults, insurance company compensates the lender. Borrowers are also benefited in a way that their homeownership is not at stake if they are unable to pay mortgage loan. Private mortgage insurance has now enabled borrowers to become homeowners by paying 5-10% down payment.

HPA or The Homeowners Protection Act was passed in the year 1998 and require all lenders asking for private mortgage insurance to provide disclosures for same act. These disclosures are applicable to all the loans that have been passed on or after 29th July, 1999. This law also contains some provisions regarding the requests made by the borrowers for cancellation of private mortgage insurance.

As per the new law, both, lenders and borrowers have the responsibility of ascertaining the requirement of private mortgage insurance. Prior to enactment of this law, borrowers were not informed by the lenders that their equity in the home has increased more than 80% due to repayment and thus, there is no need of PMI. Due to insufficient information, borrowers kept on paying premiums towards PMI. In some cases where consumers had been able to track their mortgage loans, were able to avoid premiums.

However, they still had to make requests for the cancellation of private mortgage insurance. After the enactment of new laws, all these issues have been resolved. New law is applicable to all types of residential mortgage transactions and thus, covers many types of mortgage loans. However, new laws are not applicable to FHA and VA loans, as these are government guaranteed loans. New laws also contain certain provisions for classifying the loans as ‘high risk’ loans.

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