Typically, a mortgage lender will require that a borrower purchase Private Mortgage Insurance (PMI) if their mortgage is valued at more than 80% of a home’s appraised value. PMI, which you can read more about at www.PrivateMI.com, is not life insurance. It will only pay off to the bank in the event that the mortgage buyer defaults on the loan and the value of the foreclosed home is less than the mortgage and foreclosure costs. The person paying the PMI premiums gets nothing.

PMI generally costs 0.5% of the mortgage amount per year. Therefore, if the mortgage is $200,000, the cost of the PMI is $1,000 per year. Since PMI does not benefit you (other than allowing you to buy a house with little money down), it’s advisable to divest yourself of it as soon as possible. In general, to eliminate PMI:

• You must be current with your payments.
• You must have at least 20% equity in your house.
• Your mortgage must be at least 2 years old.
• The value of the house must not have fallen below its value when the mortgage was originated.

There are exceptions to these rules that may allow PMI to be cancelled earlier or may prevent its cancellation. If your mortgage was written before July 29, 1999, it is important that you try to cancel your PMI if you can, because the lender will not automatically cancel it when you reach the necessary ownership threshold. You can find a lengthy flow chart in which you can check your eligibility for dropping your PMI in the Homeowner’s Protection Act of 1998.

PMI is not mortgage life insurance that will pay off the mortgage for the insured’s beneficiaries in the event of the death of the policyholder. It may be advisable for someone whose family would suffer economically if they were to die to have sufficient term (not whole) life insurance to support their dependents, which includes enough insurance to keep them in their home.