PRIVATE MORTGAGE INSURANCE (Dick LePre)

Private Mortgage Insurance Update (Dick LePre) A relatively law on PMI pertains to all mortgages that originated after July1999. It is not retroactive.

The law requires lenders to inform home buyers - both at closing and annually - about their right to request PMI cancellation and how to do it. Also, it requires lenders, under certain circumstances, to automatically cancel insurance  for those who choose not to request it.

On all PMI loans the lender must give the borrowers written notice at closing explaining that they have PMI and that they have the right to cancel it at a certain point.

Lenders must send borrowers an annual reminder that they have PMI and have the right to request cancellation once they've met the requirements. This applies to all loans with cancelable private MI, not just those obtained after July 29, 1999.

Borrower Initiated Cancellation

For most loans the lender must cancel PMI when the borrower requests it, is not late in his payment, and does not have any other mortgage behind the loan with the PMI. The lender must be satisfied that the property has not declined in value and that the loan balance is less than 80% of the purchase price.

Automatic Termination

PMI is to be cancelled automatically when the loan balance falls to 78% of the purchase price. The borrower cannot be late in his payments.

Alternatives to PMI

If you are putting down less than 20% there are two alternatives to PMI. You may get a 75/15/10. This is a first for 75% of the purchase price, a second for 15% of the purchase price and 10% down. This is referred to as a "piggyback". The disadvantage is that the second is at a higher rate and you are stuck with it until you refinance or pay it off. The advantage is that the interest is tax-deductible while PMI is not. The second alternative is "pseudo-PMI". Here your rate is increased and you wind up paying approximately the same as with PMI. The advantages and disadvantages are the same as with the 75/15/10. Its tax-deductible but you are stuck with it until you refinance.
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