payment, depending on the need of the borrower.
Now, however, a borrower may deduct premiums for the private mortgage insurance for up to three years on their tax returns. In many cases, this deduction has made it more cost effective to purchase the insurance than to obtain a second mortgage.
According to the Homeowners Protection Act passed in 1998, most private mortgage insurance policies automatically cancel when the 78% loan-to-value is reached. Defaulting on the payments or making late payments will, however, allow the lender to continue to require this insurance. This requires less of the home buyer because of the automatic percentage built into the policy. The savvy home buyer will, of course, want to mark this date on a calendar and check to make sure this is taken care of promptly.
Legally, the lender can hold the borrower liable for the premium on the private mortgage insurance policy until the value of the home reaches 78% of the loan-to-ratio value. Once that obligation has been met, the lender will probably require that the home be appraised again to make sure the insurance is no longer needed.
However, if the home buyer's credit score is good and all the payments are current, there is another option. He or she may be able to petition to have the private mortgage insurance removed when 20% of the home's value has been paid by the borrower.
Exceptions to these two allowances for termination of the private mortgage insurance may not be allowed on loans that are considered to be high risk by the lender. Another situation which may influence whether the lender allows for termination of the policy may be the presence of other liens on the land and/or the home.
Many considerations go into the buying of a home. If the home buyer has less than 20% down payment, he or she needs to be prepared for this to be one of those considerations. Just as property taxes and home owner's insurance are part of the home owner's future, so private mortgage insurance is part of the home buyer's assortment of tasks to be dealt with as they look into the details of their new purchase.
Article Source: Article Beam - a service of A1 Web Server Web Hosting
Craig Elliott is a freelance writer who writes about topics pertaining to the mortgage industry such as Mortgage Company | Home Mortgage Lender