Mortgage What And Who

Most borrowers understand that if they make a down payment less than 20 percent of the value of the property, they will be required to purchase private mortgage insurance. Private Mortgage Insurance is to insure the lender in case you don't pay. If they don't know it before hand they will learn it from the Truth in Lending statement nor in the Good Faith Estimate of Closing. Private mortgage insurance premiums vary by the type of loan, the purpose of the loan, the down payment and the amount insurance coverage needed by the lender. The amount of coverage the lender gets will be based on the maximum loss that the insurance company will cover. The more the insurance company is willing to cover, lessens the risk of loss by the lender or investor. Coverage standards are largely determined by Fannie Mae and Freddie Mac, the two government agencies that buy a large portion of the loans sold by lenders in the secondary market.

The rules regarding termination of the private mortgage insurance are complicated which makes it difficult for the home buyer. In some cases lenders pay for the mortgage insurance and pass the cost on to the home buyer in the interest rate. Lenders decide when to terminate the insurance and the home buyer would not be involved. The problem arises because the lenders are protected by the insurance, but don't pay for it. Many of them refuse to terminate the mortgage insurance voluntarily. They must be forced to terminate by the government.

Under one provision of the 1999 law, lenders are required to cancel private mortgage insurance on most home mortgage loans. The private mortgage insurance should cancel automatically when the loan balance to 78 percent of the value of the property at the time the loan was made. Under another provision of this law, lenders must terminate insurance at the borrower's request when the loan balance reaches 80 percent or the original value. However the lender is able to turn down your request for cancellation if you have a second mortgage, or the property has declined in value or if you had a late payment by 30 days or more within the year. Since termination is based on the original rather than the current value, you could have a long wait. It takes 142 months on a 30-year 8 percent interest loan, where as a 15-year loan with the same interest rate to get to 80 percent by 47 months.

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