President Clinton has signed into law legislation that eliminates private mortgage insurance once borrowers attain a little more than one-fifth equity in their homes.
"Far too many homeowners continue to pay for mortgage insurance long after they have built enough equity so that the lender has little risk of loss," Clinton said Wednesday.Private mortgage insurance or PMI is usually required by lenders if a purchaser makes less than 20 percent down payment on a home. It protects the lender against losses if the homeowner defaults on the mortgage.
The new Homeowners Protection Act of 1998 automatically cancels private mortgage insurance for homeowners when their accrued equity equals 22 percent of either the original purchase price or the appraised value of the home at closing, whichever is lower.