Reaching the Automatic PMI Cancellation Mark

July 15th, 2008 | 1:13 pm | Posted in 2008 Goals, Credit Card, Finance, Mortgage, PMI - Mortgage Insurance, Rants | 8 Comments »

United States Federal Trade CommissionAccording to the Federal Trade Commission, Private Mortgage Insurance (PMI) must be terminated automatically by the mortgage company when the borrower reaches 22 percent equity in the home based on the original property value — most often, the purchase price.

In my instance, the purchase price of my home was $141k. A bargain, really. Even back in 2002.

As of this morning, the remaining balance is $112,535.99. That works out to 20.187% equity based on the original property value.

To reach the 22% mark, I need to pay down an additional $2,555.99 in principle — preferably before October of this year when the mortgage company re-evaluates my escrow account (where the PMI payment is drawn from) and re-calculates my monthly mortgage payment for the following year.

If this is the first post you’ve read of mine on the subject of PMI cancellation, you may want to take a look at this earlier post where I was, in my opinion, wrongfully denied cancellation by Countrywide.

I plan to do this as soon as possible and am currently evaluating various promotional credit card offers I’ve received in the mail to be able to make the additional payment as soon at this week.

The most attractive offer so far is from Chase Bank. It’s 0% until April of 2009 with a 3% transaction fee capped at $199. In this scenario, I’d write a check to myself for $2555 and be charged with a $76.65 transaction fee (3 percent).

My new balance with Chase would be $2631.65 at 0% for 8 months. That works out to around a minimum of $330 per month to pay it off before any finance charges come along. That wouldn’t be a problem.

If this plan were successful, it would prevent paying $85.15 in PMI charges for at least 4 months (possibly more), a $130 appraisal fee, and loads of difficult to calculate interest.

So, for a cost of $76.65, I could save an absolute minimum of $470.60.

Sounds like a good plan.

Before any of this happens though, I first need to get in contact with Countrywide and ensure that reaching the 22% mark will indeed automatically cancel PMI without any additional effort (or $130 appraisals) from me.

My interpretation of the law (and I read it like 50 times over) indicates that automatic cancellation at 22% has nothing to do with an increase or decrease in the value of the home, only with how much the mortgage is paid down. I have my doubts, but we’ll see…

(In all actuality, my wife will probably make the confrontational phone call. She’s *way* better at that sort of thing than I am. That’s why I married her!)

Worst case, I knock off a lot more principle, save a bunch of money, file a complaint with the FTC, and then see where that takes me…

8 Responses to “Reaching the Automatic PMI Cancellation Mark”

  1. I am also reaching the 22% mark and I’m VERY interested to see the outcome of yours – I probably won’t be likely to worry much about it for about another 9 months as this month my escrow was re-evaluated and shockingly for the first time in almost 10 years, it made my payment go up – almost to what it was originally!

    Looking back tho – I’m doing well – for not putting anything down on the house and having made extra payments all along – reducing the term of my mortgage to only having 12 years left (on an original 30 year, only 9.5 years after purchase) – IF I keep up the extra payments that is!

    Unfortunately tho, I don’t have the luxury of doing the 0% thing you mentioned – I COULD but it would blow my snowballing out of the water! I may, however, utilize the tax refund next year for the purpose of getting rid of PMI instead of other things it always gets used for instead!

  2. Brainy Smurf Says:

    No worries, Heather! I’ll keep this topic alive until it’s settled!

  3. Assuming you think your home price will qualify wouldn’t it be cheaper and much less hassle to just pay the $130 for appraisal?

    You are paying $300 in fees here.

    Then instead of locking 2.5k into a mortgage you can pay off the car loan and put a big chunk towards your savings goal.

    Luckily when I refinanced the company I went with ING didn’t do PMI since they didn’t accept risky loans, so I haven’t had to pay PMI in about 3 years.

  4. Brainy Smurf Says:

    I’m not sure where you’re seeing the $300 in fees — if that were the case, I’d lean back towards just swallowing my pride and having the appraisal done…

    For me, it’s more about convenience than the actual numbers. I’m *really* annoyed with the fact that they want to inconvenience me and, then, charge me for it too.

    At my current pace on the mortgage, I’ll reach the 78/22 mark before the end of the year anyway so it’s not worth paying an extra $130 for the appraisal — but I’m trying to notch it up a gear so as to reach the magic number before my next escrow analysis (in essence, I’m just trying to lower my mortgage bill before they lock-in a payment which will result in a big escrow overage for 2009 — money I won’t see until late in 2009.)

    For $76 (in credit card transaction fees), I could have all of this settled in a matter of weeks. To me, that’s worth it.

    On the other hand, I’m still waiting to hear back from CountryWide about whether or not I’ll need an appraisal at the 78/22 mark as well…

    For now, I’m in a holding pattern…

  5. [...] only the threat of filing a complaint with the FTC would get some attention… Sad, a threat like that is about as effective as a car alarm… [...]

  6. CHASE MORTGAGE IGNORING 22% EQUITY RULE FOR AUTOMATIC CANCELLATION OF PMI COVERAGE

    I recently made a huge principle payment which reduced my LTV to 36%. Chase will not cancel the PMI until I pay for an appraisal. They are ignoring the Homebuyer’s Protection Act of 1998 that states that any loan with a LTV of 78% or lower (22% equity) issued after July 1999 must automatically cancel PMI at that time.

    I have filed a complaint with the FTC and told them so.

  7. SAME HERE, SEND 3 LETTER TO CHASE, THEY SIMPLY IGNORING Homebuyer’s Protection Act. Our property is under lawsute, wish I can refinance out of Chase. Worst mortgage banker I ever had.

  8. I also have a mortgage with chase, and was told that PMI would automatically be cancelled when i reached 22% equity based on the original value of the property (purchase price in my case). After looking closely at the documents, it appears i have been half misled. it states that it will be automatically removed on the date that i am SCHEDULED (they have it in bold) to reach 78% of the original value. This means that i cannot pay it down to 78% and have it automatically cancelled prior to that scheduled date. tricky suckers. I have reached 80% of original value which allows me the chance to request cancellation of PMI, but i’m sure they’ll require an appraisal, and my house is probably worth about half of what it originally was. it really makes me want to stop paying.

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