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.
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.
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:
The Homeowners Protection Act of 1998 also requires:
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 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.
Last Modified: 02-21-2013 02:42 PM PSTLaw Library Disclaimer
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