THE WHITE HOUSE
Office of the Press Secretary
Fact Sheet on Private Mortgage Insurance
PMI is insurance that lenders require home buyers to purchase if they are making less than a 20% down payment. The insurance protects the lender against losses if the homeowner defaults on their mortgage. Often, the homeowner pays hundreds of dollars a year in PMI premiums for the life of their mortgage, even after the family has accumulated 20% of equity in their home and the lender no longer needs the additional protection.
This bill would allow homeowners, in most circumstances, to request that their PMI be canceled when their equity reaches 20%; the bill would require that the PMI be automatically terminated when the homeowner's equity reaches 22%; and the bill would require that homeowners receive disclosures about their cancellation rights.
For some families, this will means hundreds and even thousands of dollars of savings over the lifetime of their mortgage.
For example, with a 10% down payment on the average-priced home, with fixed rate mortgage at 7% interest, the borrower will have 22% equity in their home after 10 years. However, under a typical policy, the homeowner continues to pay $320 a year in PMI. If they do not sell or refinance for 15 years, they will pay $1600 unnecessarily. If they keep the mortgage for the full 30 years, they will pay $6400 unnecessarily.
Most people refinance or sell their home before the 30-year mortgage is paid off. We do not have precise estimates of how many people will be affected. The Senate Banking Committee heard evidence from the mortgage insurance industry that 250,000 people would be affected. Other estimates are much higher. A review of one lender's portfolio showed that one in five borrowers was still paying PMI after reaching 20% homeowner equity.