Home buyers who can’t put at least 20 percent down usually have to carry private mortgage insurance, often an expensive proposition. One good thing about mortgage insurance, though, is that it doesn’t last forever.
Private mortgage insurance protects the lender in the event that a borrower stops making payments before building up much equity in the property. But a borrower who diligently pays down a loan, eventually crossing that 20 percent equity threshold, is no longer considered a big risk, and can expect to be rewarded with cancellation of the mortgage insurance requirement.
Under the Homeowners Protection Act of 1998, lenders must terminate mortgage insurance after a certain point, something that hadn’t been done consistently before then. The act set the termination date as the point at which the principal balance on the loan is scheduled to reach 78 percent of the original value of the home.
