 | Charlie Traffas has been involved in marketing, media, publishing and insurance for more than 40 years. In addition to being a fully-licensed life, health, property and casualty agent, he is also President and Owner of Chart Marketing, Inc. (CMI). CMI operates and markets several different products and services that help B2B and B2C businesses throughout the country create customers...profitably. You may contact Charlie by phone at (316) 721-9200, by e-mail at ctraffas@chartmarketing.com, or you may visit at www.chartmarketing.com. |
Banking & Finance
2003-04-01 15:30:00
When is mortgage insurance required
ANSWER: The Homeowner's Protection Act, a new law requiring mortgage lenders to automatically cancel private mortgage insurance (PMI), will likely save an estimated quarter million homeowners $250 to $1,200 a year in unnecessary PMI payments. Additionally, the law creates the potential for significant savings for the one million homebuyers that obtain PMI-supported loans annually, according to Mortgage Insurance Companies of America."PMI allows homebuyers to purchase a home with less than 20 percent down, and has been instrumental in allowing more Americans to achieve homeownership. It also insures lenders against a loss in the event the homebuyer defaults on the loan. The Homeowner's Protection Act requires lenders to automatically cancel PMI coverage when the loan-to-value reaches 78 percent and the loan payments are current. Homeowners will no longer have to worry about paying unnecessary PMI payments because they will automatically drop off their payments, allowing them to spend their money on other things."The new law applies to home loans on primary residences financed after July 28, 1999. It automatically cancels PMI for homeowners whose payments are current and who are still paying for PMI when their equity hits 22 percent.The law also allows homeowners to initiate procedures to terminate PMI when their equity hits 20 percent. However, it is the homeowner's obligation to prove they have 20 percent equity in their home, which can be accomplished by providing evidence such as an appraisal of value.Every homeowner's eligibility to drop PMI is different and is based on such criteria as loan-to-value status, pay habits, whether the property is a rental or owner-occupied and many others. Homeowners who believe they are eligible to stop paying PMI should contact their mortgage lender to learn the specific guidelines and processes to follow. There are other options for homebuyers who want to avoid paying PMI. If homebuyers are purchasing a property and have less than a 20-percent down payment, some lenders offer a "no mortgage insurance" loan. While these loans typically have a slightly higher interest rate, they do result in lower monthly payments and may have some tax benefits, because, generally, the interest paid on home mortgages is tax deductible.
