New Law Makes It Easier to Get Rid of Private Mortgage Insurance

By Brown, Jeff | The Florida Times Union, August 16, 1999 | Go to article overview

New Law Makes It Easier to Get Rid of Private Mortgage Insurance


Brown, Jeff, The Florida Times Union


It's long been one of the crummiest deals around: private mortgage insurance, or PMI. Now, thanks to a federal law that took effect July 29, homeowners have a better chance of breaking free of this annoying cost.

PMI is insurance to protect the mortgage lender from loss if the borrower defaults on the loan. Typically, it's required whenever a loan represents more than 80 percent of the property's value. Borrow $90,000 to buy a $100,000 home, you'll probably pay PMI. Borrow $80,000 or less, you probably won't.

PMI charges are folded into the monthly mortgage payment, typically costing about 0.5 percent of the loan amount. So if you borrowed $100,000, you might pay $500 a year, or about $42 a month. That could add up to $15,000 over the 30-year life of a loan. If you could forgo the PMI payment and invest $42 a month at 8 percent for three decades, you'd end up with nearly $60,000. So PMI is not, by any means, a small, incidental cost.

Of course, no one should have to pay PMI for 30 years. To the extent there is a legitimate case for PMI -- not a very strong case, in my view -- it's that the lender needs to be sure of recovering its money if it has to foreclose and sell the property. PMI assures the lender will come out whole even if the property fetches less than it cost when the loan was issued.

The mortgage industry argues that PMI makes it possible to lend money to borrowers who otherwise would be considered too risky. Without PMI, the argument goes, borrowers would have to come up with larger downpayments or pay higher interest, and some people might not get mortgages.

Maybe, but foreclosures aren't all that common. And most homes appreciate, so lenders' chances of unloading a foreclosed property for more than the remaining debt are usually pretty good. Besides, why shouldn't lenders shoulder some risk? Isn't that what lending is all about?

Even if you believe that PMI is justified when a loan is first issued, it clearly is not years later, after the borrower has paid off a chunk of the loan and the property has gained value, eliminating the lender's risk of loss.

But once a mortgage is issued, the typical mortgage lender usually continues charging for PMI indefinitely. Savvy homeowners have known for years that once their outstanding debt totals less than 80 percent of a property's value, they can ask the lender to drop the PMI requirement. But lenders didn't have to comply, and they rarely told borrowers this potential saving was possible.

Now that has changed. The federal Homeowners Protection Act of 1998 describes conditions under which the PMI requirement should be terminated.

For loans issued on or after July 29, the PMI requirement should end automatically when the remaining loan amount falls to 78 percent of the property's value at the time the loan was made.

In addition, any homeowner, including those with older mortgages, can apply to have the requirement dropped by providing evidence that the loan represents no more than 80 percent of the property's current value. Thus, a homeowner can benefit from property appreciation, even if only a small amount of the debt has been paid off.

Homeowners should have little trouble getting the PMI dropped, unless there is a history of late payments. But you may have to spend several hundred dollars to have the property appraised.

Since the appraisal fee is non-refundable, best do some research first. The annual mortgage statement received from the lender every January will give an idea how much is still owed on the loan, and you can get an updated figure from the lender. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

New Law Makes It Easier to Get Rid of Private Mortgage Insurance
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.