Borrower paid mortgage insurance is insurance issued by a private company that protects the mortgage lender against some or all of the loss caused by a default on a mortgage loan. Borrower paid mortgage insurance is generally required by lenders for borrowers with a down payment of less than 20% of the home purchase price. The borrower pays the mortgage insurance premium for private mortgage insurance.
Benefits of Borrower Paid Mortgage Insurance
Borrower paid mortgage insurance enables lenders to make what the lender considers to be a high risk mortgage loan, without the risk. Borrower paid mortgage insurance also enables borrowers which do not have a large down payment to have access to home ownership. A buyer who has borrower paid mortgage insurance may be able to purchase a home with as little as a 3% down payment.
Cancellation or Termination of Borrower Paid Mortgage Insurance
If your mortgage was signed prior to July 29, 1999, you must ask to have the borrower paid mortgage insurance cancelled once you exceed 20% equity in your home based on the original purchase price, provided that you are current on your mortgage payments.
If your mortgage was signed on or after July 29, 1999, the Homeowners Protection Act of 1998 adds special protections to the borrower. Generally, if you are current on your mortgage payments, your borrower paid mortgage insurance must be terminated automatically when you reach 22% equity in the home based on the original purchase price. Your borrower paid mortgage insurance can also be cancelled when you reach 20% equity in the home based on the original purchase price if cancellation is requested and if you are current on your mortgage payments.
The protections listed above do not apply:
- To government-insured FHA or VA loans or to loans with lender-paid mortgage insurance;
- To high risk borrowers;
- When the borrower is not current on the mortgage payments within the year prior to the time of cancellation; or
- If there are other liens on the property.
Additional Protections of the Homeowners Protection Act of 1998
The Homeowners Protection Act of 1998 also requires:
- That the borrowers are told at closing and once a year about borrower paid mortgage insurance termination and cancellation if the mortgage was signed on or after July 29, 1999
- That lender's provide a phone number that all borrowers may call for information regarding termination and cancellation of borrower paid mortgage insurance if the mortgage was signed on or after July 29, 1999
- The lenders must tell all borrowers of the termination and cancellation rights they have under those loans, no matter what date the mortgage was signed
Do I Need a Finance Attorney for My Borrower Paid Mortgage Insurance Issue?
Borrower paid mortgage insurance law is very complex and varies by state. Many people continue to pay borrower paid mortgage insurance even after acquiring enough equity in the home to cancel or terminate the borrower paid mortgage insurance, costing thousands of dollars each year. A real estate attorney or finance attorney can help you determine whether you must continue to pay your borrower paid mortgage insurance or whether cancellation or termination is an option.