Home-Buddies

Feeling Mortgage Pressure? Get Out of PMI and Into MPI

It’s unfortunate that bills like H.R. 5830 and H.R. 5749 are going to be too little too late as far as easing the pressures most home-owners are feeling these days. However, there are ways to get out of PMI now and move into Mortgage Protection Insurance which may ease the pressure a little.

Don’t confuse Private Mortgage Insurance (PMI) with Mortgage Protection Insurance (MPI). The names are similar, but the features are very different. One insurance is designed to protect “you” and one is designed only to protect your lender.

Private Mortgage Insurance (PMI) reduces the risk that the lender may face in case of foreclosure. Your lender probably required you to purchase “private mortgage insurance” (PMI) if you bought a home with less than 20% down. Even though you are the one who is paying the monthly premiums for this insurance, PMI benefits are paid to your lender - not you. It’s simply an insurance benefit that is paid to your lender so they don’t lose money in the event that your home forecloses. And with this type of insurance, there are no disability or unemployment benefits - or much of any benefit to you for that matter.

With the Homeowners Protection Act of 1998, you may qualify, and elect, to cancel your private mortgage insurance depending upon when your loan was originated, and if the insurance is “lender paid” or “borrower paid”.

There are 2 basic ways for “borrower paid” PMI to be canceled

• Automatic – it is generally supposed to happen automatically by the mortgage servicer when your equity reaches about 22% of the original property value, but you must be current on your payments. Note: In today’s market, loans and the rights to service them often are bought and sold. Be sure you know who your mortgage servicer is. (A mortgage servicer is responsible for collecting your monthly loan payments and crediting your account.)

There are different requirements for “high risk” mortgage loans, (i.e. Fannie Mae and Freddie Mac). Be sure to contact your lender if you feel you may fit this category.

• Request – A homeowner can request that the Private Mortgage Insurance be canceled when their equity gets to about 20% of the original property value. There is usually a special list of criteria for you to meet with your lender for this. Be sure to contact your lender for this criteria list.

Special Note: If your loan was issued before July 29, 1999, you may still contact your lender and request information on canceling your Private Mortgage Insurance.

Mortgage Protection Insurance (MPI) pays off the rest of your mortgage when you die. This may also be called Mortgage Protection Life & Disability Insurance or Mortgage Payment Protection Insurance and may make your mortgage payments for you if you are involuntarily unable to work because of sickness or an accident (depending on the level of benefits that are available and offered to you). It’s like a life insurance policy. You may elect to purchase this from your lender or from a specialist provider. Also some mortgage protection insurance policies do not pay out if you already have a pre-existing medical condition, or if you could have seen that you were going to become unemployed at the time you took out the policy.

Some variables of benefits to look for and review when considering Mortgage Protection Insurance (Mortgage Protection Life & Disability Insurance or Mortgage Payment Protection Insurance) may include:

• Options that can provide benefits in case of disability or unemployment.
• Options that can allow you to access your death benefits (called living benefits) if there is a terminal, chronic or critical illness.
• Can it build any cash value?
• Can you take your plan with you if you sell your home or refinance?

Regardless of which insurance options you may pursue, be sure to thoroughly review all options that may apply to you and your needs. If you don’t understand everything, keep asking about it until you do. Make sure you fully understand how all the aspects will pertain to you.

Good luck.

Barbara Partaka
Home-Buddies