Rules for Dropping Mortgage Insurance

Rules for Dropping Mortgage Insurance

What do the PMI termination rules really mean to the average person?

Dropping Conventional Mortgage Insurance Rules

• Automatic Termination
  
  • Fixed Rate & Adjustable – Removed when reduced to 78% LTV
    
  • LTV based upon ORIGINAL VALUE
    
  • Based SOLEY on regular amortization (not prepayment of principal)
    

Additional Requirement:

• Mortgage payment must be current
  
• Borrower Requests Termination
  
  • Fixed & Adjustable – Removed when reduced to 78% LTV
    

Additional Requirements:

• Submit cancellation request in writing
  
• Good payment history
  
• Current on mortgage payments
  
• Appraisal or Certification that property value has not decreased BELOW the original value
  
• No 2^nd liens or subordinated loans on property
  

Dropping FHA Mortgage Insurance Premium Rules

Loans closed PRIOR to January 1, 2001 are NOT eligible for termination of MIP (monthly insurance premium) if closed on January 1, 2001 and after, MIP will be automatically terminated under the following conditions.

• More than 15-year term
  
  • Must pay for 5 years AND
    
  • 78% LTV based on original LTV
    
• 15-Year Term or less
  
  • If original loan amount is 90.01% or more, of the original appraisal value, MIP will be terminated at 78%
    
  • 5-year minimum payment waived
    
  • If original loan amount is 90% or less, of the original appraisal value, NO monthly MIP will be charged.
    

NOTE: Loan-to-Value for purchases based on the sales price or appraisal value, whichever is lower

• Loan-to-Value for refinances based on appraisal value
  
• Loan-to-value figured on base loan amount WITHOUT UFMIP
  

Estimated Number of Years To Drop Mortgage Insurance Chart

At application, do the math and let your clients know the estimated number of years that the PMI or MIP will be eliminated.

The interest rate makes a difference, but here’s an example of a sales price/appraisal value of $250,000 at 6% interest rate, and based on making regular monthly payments (no principal prepayment).

Down Payment Loan Amount Term Years PMI/MIP Eliminated

5%         237,500     30 yr         11 yrs

10%     225,000     30 yr         9 yrs

15%     212,500     30 yr         6 yrs

5%         237,500     20 yr         6 yrs

10%     225,000     20 yr         4.5 yrs

15%     212,500     20 yr         3 yrs

5%         237,500     15 yr         4 yrs

10%     225,000     15 yr         3 yrs

15%     212,500     15 yr         2 yrs

If the interest rate is 1% lower than 6%, subtract one year If the interest is 1% higher than 6%, add one year