Since last few years, mortgage protection insurance has been greatly helping buyers to realize their dream of owning a house for themselves as well as their loved ones. However, it’s not a good idea to have an insurance for the whole period of a loan. This article explains how can you get your mortgage insurance canceled easily.
What is a PMI
PMI or Private Mortgage Insurance plans are designed to help a buyer a home of their own with a down payment of less than 20 percent. This means, even if you have a down payment of less than 20 percent of the home’s original value, you can realize the dream of buying a house. For the same, you need to buy a mortgage life insurance plan and after that, you can proceed with buying your home from a lender.
You need to make your mortgage premium every month and if you can’t pay the same due to illness, an accident or a short break from the job; the insurance provider will pay your mortgage payment to the lender and keep the mortgage contract going. However, you will need to inform the insurance provider in advance if you won’t be able to pay the premiums next month. Also, you need to note that premiums should be made every month till the due date and if you skip any premium with prior information to the provider, there are chances that you may lose your insurance and may not get cover when you need it the most. You can get multiple mortgage protection insurance quotes at your fingertips just by requesting a quote on an insurance portal.
The Procedure to Remove PMI
You are supposed to have 20 percent of the equity in the home if you are planning to remove your PMI. This means the balance on your mortgage life cover shouldn’t be more than 80 percent of the original appraised value of the home. As the balance of appraised value comes down to 80 percent or lesser, you are supposed to ask your lender to cancel the insurance as the balance of original value comes down to 80 percent or lesser, you are supposed to ask your lender to cancel the PMI as soon as possible. According to the new reform in laws, lenders are directed to cancel the PMI automatically as the balance drops to 80 percent or lesser.
Canceling A Plan
You are supposed to write to your lender for canceling your mortgage if you have made payments for more than 20 percent of the original value of the house. Other than this, you can also get a new proposal for your lender and as they prefer a new proposal over the existing sales price. Also, you can plan to prepay your loan by paying more than the scheduled amount. This way, you can easily bring the balance amount to less than 80 percent and can apply for canceling your PMI. Another thing you can do is remodeling your home by adding a room, a gym or a parking shed to home that will further increase the total appraised value of the same.
Rights of A Borrower
Like the lenders, borrowers have their rights as well. At the time of closing, borrowers need to be informed about how much time it may take to successfully cancel the life insurance mortgage. Also, borrowers should be provided with a helpline number where they contact a representative and ask their queries about canceling the same.
Calculate the Loan Balance
To know when you will be eligible to apply for canceling a mortgage, you are supposed to know what percentage of the loan amount you still owe to the lender. To calculate the same, divide the current loan balance by total appraisal value and multiply the result by 100.
Current Loan Balance / Total Appraisal Value X 100 = Balance Loan Percentage
For example, if the total appraised value of your home is $250,000 and the current loan balance is $200,000. The balance loan percentage will be
$200,000 / 250,000 X 100 = 80 percent
Here, your balance loan percentage is 80 percent, that means you are eligible to apply for a cancelation of an insurance plan.
Few More Criteria to Fulfil
Other than this, there are few more criteria that you need to fulfill a successful cancellation of an insurance plan.
- You have to apply for a cancelation in writing to the lender.
- You shouldn’t have skipped the mortgage payments and have a good payment history.
• You shouldn’t have any other loan on the same property or home.
Anil Kumar is the owner of Optinsure.com and has been providing insurance-related support and services to help customers make their most crucial financial decisions.