Cancelling mortgage insurance

Cancelling mortgage insurance is typically permitted by lenders and investors after the homeowner has built up enough equity in the home.

Cancelling mortgage insurance using original value

The Homeowners Protection Act of 1998 (HPA)1 covers single-family primary residences whose sales were closed on or after July 29, 1999. HPA provides for borrower-requested cancellation and lender-required cancellation.

Borrower-requested cancellation under HPA

The borrower must provide the lender a written request for mortgage insurance cancellation. Upon receiving the request, the lender must cancel the mortgage insurance policy either:

• On the date the mortgage loan balance is first scheduled to reach 80% of original value, based solely on the initial amortization schedule², regardless of the outstanding balance of the loan OR
• On the date the mortgage loan balance actually reaches 80% of the original value

For a purchase transaction, original property value is the lesser of the property sales price and appraised value. For a refinance transaction, original value is the appraised value.

Mortgage insurance coverage can be cancelled only if:

• No subordinate liens exist AND
• The borrower has a good payment history AND
• The borrower satisfies the lender's requirement that the property value has not declined

Lender-required cancellation under HPA

The lender must automatically cancel the mortgage insurance policy either:

• On the date the mortgage loan balance is first scheduled to reach 78% of original value, based solely on the initial amortization schedule², regardless of the outstanding balance of the loan AND
• If the borrower is current on the payments required by the terms of the mortgage

Different cancellation requirements apply to loans designated at origination as "high risk."

Cancelling mortgage insurance using current value

Individual investors establish the criteria for cancelling mortgage insurance based on a property's current value. HPA does not address mortgage insurance cancellation using current value. Fannie Mae and Freddie Mac typically require³:

• That the loan be seasoned at least 2 years AND
• That the borrowers have an acceptable payment history AND
• That the LTV based on a current appraisal be 75% or lower if less than 5 years have elapsed since the loan originally closed OR
• That the LTV based on a current appraisal be 80% or lower if more than 5 years have elapsed since the loan originally closed

Check other investors' mortgage insurance cancellation requirements.

Borrowers must request mortgage insurance cancellation in writing and provide a current value estimate acceptable to their lender.