I own over 20% of my house. Is the extra PMI I paid refundable?
February 26, 2012 8:53 AM   Subscribe

I own over 20% of my house. Is the extra PMI I paid refundable?

I bought my first house about 2 years ago, and have paid off at least 20% of its appraised value. I understood that PMI would stop being charged once I owned 20% of the house, but I am still being charged for it. The loan is in my wife's name, and I have been asking her to call and find out how to cancel this, but she hasn't. My question is: is the company responsible for refunding these payments? The loan is an FHA loan, if that matters. And the appraisal I am basing my claim to 20% ownership on is the county's appraisal.
posted by idyllhands to Work & Money (4 answers total) 1 user marked this as a favorite
Best answer: I believe the law is you can request PMI cancellation when you have 20% equity and it is supposed to automatically cancel at 22%. Between 20% and 22% the lender can either agree to drop it or demand evidence that your property hasn't dropped in value (possibly to the point of you paying for an appraisal).

Your wife needs to make the request in writing. Do not do this with a phone call (unless it's just to ask where to send the letter).

Back in the day when I had PMI and it could be dropped, I was refunded the excess premiums that were paid once my equity passed the threshold, since there was some lag between that and when the cancellation actually happened.
posted by bretmartin at 9:12 AM on February 26, 2012

Best answer: Under the Homeowners Protection Act of 1998, the 20% equity is calculated on the home's value at the time of purchase, not based on its current assessed value.
posted by Lame_username at 10:10 AM on February 26, 2012 [1 favorite]

The rules around FHA loans have been changing quite a bit recently, so if your mortgage is older this may not be the case, but my understanding is that the mortgage insurance you pay on an FHA loan is not "PMI" but rather an additional premium for a government guarantee--and it's not removable from the mortgage for most (or all?) FHA loans. See here for more details. Like I said, that might be a new thing since 2007-2008, so it's worth checking with your loan servicer to see what the deal is for your loan specifically.

However, if that is the case, your best course of action might be to explore re-financing the house into a traditional non-FHA mortgage--if you have 20% equity, then you should be able to secure a pretty great rate and not have to deal with PMI at all. Plus, FHA loans also tend to have a higher interest rate (by between 0.5% and 1.0%) then traditional mortgages, which is another reason you might be better off refinancing rather than just trying to get the insurance premium removed, even taking into account closing costs.
posted by iminurmefi at 10:29 AM on February 26, 2012

Best answer: Generally, 30 year FHA loans require monthly MI payments for a minimum of five years or until you reach 22% equity (based on the original appraisal), whichever takes longer. At 78% LTV, assuming 60 months have passed, the MI will drop off automatically. If you've only been had the mortgage 2 years, you have a few years left on the MI, and a refi may be your best option.

If your loan had a 15 year term, you may not need to pay MI for a five year period, but that would depend on when your loan was originated and the original LTV; those rules have changed a few times in the last couple of years. Your loan servicer should be able to tell you (or the loan amortization schedule from your closing should show) when it drops off.
posted by tinymojo at 11:58 AM on February 26, 2012 [1 favorite]

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