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Rules for Dropping Mortgage Insurance

What you and your clients should know!

Yep, there’s a disclosure for that!

But what do the PMI termination rules really mean to the average person?

Dropping Conventional Mortgage Insurance Rules

§ Automatic Termination

o 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

o 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 originaln 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

Information brought to you by Mortgage talking Points / MortgageCurrency.com