FTC Consumer Alert

Federal Trade Commission ■ Bureau of Consumer Protection ■ Office of Consumer and Business Education

Cancellation of Private Mortgage Insurance:

Federal Law May Save You Hundreds of Dollars Each Year

If you put less than 20 percent down on a home mortgage, lenders often require you to have

Private Mortgage Insurance (PMI). PMI protects the lender if you default on the loan. The

Homeowners Protection Act of 1998  which became effective in 1999  establishes rules for automatic termination and borrower cancellation of PMI on home mortgages. These protections apply to

certain home mortgages signed on or after July 29, 1999 for the purchase, initial construction, or

refinance of a single-family home. These protections do not apply to government-insured FHA or VA

loans or to loans with lender-paid PMI.

For home mortgages signed on or after July 29, 1999, your PMI must  with certain exceptions 

be terminated automatically when you reach 22 percent equity in your home based on the original

property value, if your mortgage payments are current. Your PMI also can be canceled, when you

request  with certain exceptions  when you reach 20 percent equity in your home based on the

original property value, if your mortgage payments are current.

One exception is if your loan is high-risk. Another is if you have not been current on your

payments within the year prior to the time for termination or cancellation. A third is if you have other

liens on your property. For these loans, your PMI may continue. Ask your lender or mortgage

servicer (a company that collects your payments) for more information about these requirements.

If you signed your mortgage before July 29, 1999, you can ask to have the PMI canceled once you

exceed 20 percent equity in your home. But federal law does not require your lender or mortgage

servicer to cancel the insurance.

On a $100,000 loan with 10 percent down ($10,000), PMI might cost you $40 a month. If you can

cancel the PMI, you can save $480 a year and many thousands of dollars over the loan. Check your

annual escrow account statement or call your lender to find out exactly how much PMI is costing you

each year.

Additional provisions in the law

● New borrowers covered by the law must be told  at closing and once a year  about PMI termination and cancellation.

● Mortgage servicers must provide a telephone number for all their mortgage borrowers to call for

information about termination and cancellation of PMI.

● Even though the laws termination and cancellation rights do not cover loans that were signed before

July 29, 1999, or loans with lender-paid PMI signed on any date, lenders or mortgage servicers

must tell borrowers about the termination or cancellation rights they may otherwise have under those

loans (such as rights established by the contract or state law).

 Federal Trade Commission Toll-free 1-877-FTC-HELP

 www.ftc.gov For the Consumer

July 2000
Next Steps

Some states may have laws that apply to early termination or cancellation of PMI  even if you

signed your mortgage before July 29, 1999. Call your state consumer protection agency for more

information about your states rules. Fannie Mae and Freddie Mac, which buy home mortgages from

lenders, also may have guidelines affecting termination or cancellation of PMI on home mortgages

signed before July 29, 1999. Check with your lender or mortgage servicer, or call Fannie Mae or

Freddie Mac, for more information.

Contact your lender or mortgage servicer to learn whether youre paying PMI. If you are, ask how

and when it can be terminated or canceled.

For More Information

The Federal Trade Commission publishes a series of free credit-related publications. For a complete

list of publications, call toll-free: 1-877-FTC-HELP (382-4357), TDD: 202-326-2502; visit:

www.ftc.gov; or write: Best Sellers, Consumer Response Center, Federal Trade Commission, 600

Pennsylvania Avenue, NW, Washington, DC 20580.

 Federal Trade Commission Toll-free 1-877-FTC-HELP

 www.ftc.gov For the Consumer