Some of you may be familiar with private mortgage insurance (PMI). With most types of mortgages, if you finance more than 80% of your home purchase, you are required to purchase PMI, which is not for your benefit but for the benefit of the lender. If you default on your loan, the lender is protected by the insurance. It makes sense since people who aren’t heavily invested in their home are more likely to default than those who have a lot of money in their house.
Just because it makes sense doesn’t make it fun to be paying for insurance that doesn’t really benefit me, though. We bought our house with 3% down, so we’ve been paying for PMI for a couple of years now. We have an Excel spreadsheet that we use to play with the numbers, you know, to see what an extra lump sum payment now will do to our final payoff date, or see how increasing the monthly payment by a few dollars impacts the long term picture. One of the things in our worksheet is our “no more PMI” date, and it was exciting to see it getting closer and closer. Home values have been going up here (just like everywhere else) so we thought about getting the house reappraised to get us over the 20% mark, but we were close enough that it wasn’t worth the appraisal cost.
As it turned out, we sold some stock and paid a big chunk on the mortgage in November, and that took us right past 80% equity to 77.5% in December. So my responsible husband called up ABN AMRO, our mortgage holder, and requested that PMI be cancelled (he also discussed another, unrelated issue). The nice representative confirmed that we were eligible to have it dropped and told him she would submit a request for an official evaluation. We were happy. No more paying for someone else’s insurance!
And then. January came, and our autodraft mortgage payment was transferred, and the chunk for PMI was taken right with it. We thought it was just a fluke and gave them the benefit of the doubt. Only they took the PMI payment in February, too. Grrrr.
My husband called them up again, cited the December phone call (we’ve learned through hard experience to keep detailed notes of all such calls). They looked it up, and informed us that there was no mention of our request in the call notes. Great! Daniel thought he had seen something on their site in the past about PMI being automatically cancelled at 22% equity, so he mentioned it. The rep didn’t know anything about this. Okay, fine. Daniel was pretty annoyed by this time, and became more so when the rep said we had to send in a letter requesting cancellation. We got the mailing address and the fax number.
In the meantime, while Daniel was on the phone making friendly remarks like “that’s quite the scam you’re running”, I started doing some research online. Unfortunately, he’d just hung up when I found really good, detailed information about the Homeowners Protection Act. Imagine my surprise to find out that, as best I can tell according to federal law, ABN AMRO was legally required to have cancelled our PMI—and didn’t. Here’s a summary of the applicable part:
Your private mortgage insurance, if paid by you directly, will be automatically cancelled when:
* Your mortgage balance is scheduled to reach 78% of your home’s original value (as determined by your loan’s initial amortization schedule), and
* You are current on your payments.
Interesting, huh? So we reported ABN AMRO to the FDIC and the FTC, and feel much better. We’ve also requested a refund for the amount taken for PMI in January and February. Will we get it? Who knows. But if ABN AMRO holds your mortgage, I’d highly recommend keeping a close eye on them.
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