ABA Family Legal Guide

Buying and Selling a Home

Financing a Home Purchase

The Basics

Do I have to pay PMI for the life of the loan?

No. The federal Homeowner Protection Act, which went into effect in the summer of 1999, helps consumers understand when they no longer need to pay private mortgage insurance--and thus save thousands of dollars over the length of a home loan. Once you have built up at least 20 percent equity in the home--meaning that the money owed is less than 80 percent of the home's value--the lender is no longer at risk. At that point, you can ask that the insurance be canceled. Be aware that the insurer will need written support from a certified appraiser as to the value of your home. The value assessed by a municipality for real estate tax purposes is seldom considered in evaluating home equity.

Under the federal law, the lender must cancel the insurance when the mortgage balance falls below 78 percent of the home's original purchase price. However, because homes usually appreciate in value, you may be able to cancel it earlier because rising home values increases equity. Federal law now requires the lender to tell you annually that you have the right to cancel if you meet certain criteria.