What Is Borrower Paid Mortgage Insurance?

If you are planning to buy a home for yourself but you don’t have enough cash to make the down payment, you can still own a house with the help of borrower paid mortgage insurance. When you make payments for the borrower paid mortgage insurance, the lender’s risk of losing his cash decreases. You are required to pay private mortgage insurance if you are making a down payment that is less than 20% of the purchase price of your home. Borrower-paid mortgage insurance is also referred to as “traditional mortgage insurance”. These are usually provided by private companies and safeguard lenders against financial loss in case the borrower defaults in making mortgage payments.

Salient features of borrower paid mortgage insurance

In case you have taken out the mortgage prior to July 29, 1999 the mortgage insurance gets cancelled once you attain 20% equity in your property. This is true provided you have no missed payments and you have made mortgage payments on a regular basis.

In the event, your mortgage loan was taken out on or later than July 20th 1999, homeowners can enjoy benefits as laid down by the Homeowners Protection Act, 1998. As per the act, if you have been regular with your mortgage payments, the borrower paid mortgage insurance gets cancelled automatically, when 22% of equity has been attained in the purchase price of your property. You can request your lender to cancel BPMI if you have attained 22% equity in the property value and have not missed payments.

However, the above norms do not apply under the following circumstances –

• The norms don’t apply in case of government insured VA or FHA loans and loans with lender-paid mortgage insurance
• If you are not current with your mortgage payments, the termination procedure will not be applicable in your case.
• Borrowers who pose to be of high risk to the lenders
• The above norms will not be applicable if there are liens on the property.

The Homeowners Protection Act 1998 requires the following –

• That the borrowers should be informed at least once a year and at time of closing about the borrower-paid mortgage insurance cancellation as well as termination process provided the mortgage was taken out on or after 29th July, 1999.
• The lenders are required to tell the borrowers about the cancellation as well as the termination process irrespective of the date when the mortgage was taken out or signed.
• The Act also makes it mandatory for the lenders to provide a phone number that can be reached by borrowers for making queries regarding the cancellation as well as termination of borrower-paid mortgage insurance.