If you didn't put down at least 20 percent of the purchase price of your property when you purchased it, then you probably have to pay for private mortgage insurance. It is a kind of insurance that will safeguard the financial institution in the event that you are unable to repay the loan. And it's not exactly low-priced either. You should plan on making annual payments of $1,000 for every $100,000 that you have borrowed. That works out to be $83 every every month! There are a few different routes you may take if you are interested in permanently canceling your private mortgage insurance policy.

The following is the scoop:

Reduce the principal of your mortgage.

The Homeowner's Protection Act of 1998 mandates that lenders must automatically cancel your private mortgage insurance (PMI) on the date that your principal balance is scheduled to reach 78 percent of the original value of your home. This date falls on the date that your loan was originally taken out (defined as the lesser of the sales price or appraised value of your home at the time that you bought it). You may find the date your 78 percent payment is due by consulting the original amortization schedule or the PMI documentation, or you can phone the bank and ask for it.

If you have paid down your mortgage to an amount that is less than 80 percent of the home's initial value, you may submit a request to have your private mortgage insurance canceled. I'm willing to guess that you would want to get rid of your PMI as soon as possible. To be eligible for this, your mortgage payments must be current, you must have a good payment history (no payments that were late by at least 30 days in the preceding year or payments that were late by at least 60 days in the preceding two years), and you must submit your cancellation request in writing (a phone call will not suffice).

Your mortgage lender will probably want you to provide evidence that there are no other liens on your property. Additionally, your lender may insist that you pay for an assessment to demonstrate that the value of your house has not decreased. Your private mortgage insurance will be terminated as soon as they confirm that you have satisfied all of their prerequisites and conditions.

Boost the resale value of your property.

You can request that your private mortgage insurance (PMI) be canceled if you have made significant improvements to your home or if you believe that the home values in your area have increased sufficiently to give you 20 percent equity in your home. However, your lender is not legally required to comply with your request and may refuse to do so. Despite this, it is still something that should be pursued. You should be aware, however, that you will be asked to pay for an appraisal in order to demonstrate that you have the equity that you claim to have.

Make it through the first half of your mortgage payment.

When you reach the halfway point of your amortization plan, your lender is compelled to cancel your private mortgage insurance (even if your principle amount hasn't decreased to 78 percent). This happens regardless of whether or not your main balance has decreased. Therefore, if you have a mortgage with a 30-year term, this will occur when you are 15 years into the loan. The phrase "final termination" refers to this particular regulation.


Have you given any thought to the possibility of refinancing your house in order to get a cheaper interest rate, a shorter loan term, or both? After that, you will have still another chance to cancel your private mortgage insurance and save money. If the appraisal that is performed as part of the refinancing process reveals that you have equity in your property amounting to twenty percent or more, you will not be required to make payments toward private mortgage insurance on the new loan. Score!

There Are Some Exceptions to the Rule

The guidelines that are presented here are applicable to mortgage loans that were issued on or after July 29, 1999, and they only apply to properties that are being used as a principal residence.

Check with the relevant authorities in your state if you think this may be relevant to you since some states have passed rules that make it easier for homeowners to cancel PMI on a second house.

Be aware as well that these regulations do not apply to loans that, at the time they were originated, were categorized as high-risk (although final termination regulations do), or to any loan that is insured by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). For information on your rights in relation to such loans, please refer to the National Housing Act.