NCPA - National Center for Policy Analysis

Limiting Mortgage Insurance

April 10, 1997

Most mortgage lenders require home-buyers to purchase private mortgage insurance if their down-payment is less than 20 percent of a home's purchase price. But many home-owners wind up continuing to pay the insurance policy long after they have built up substantial equity in their homes, according to studies. Usually they are unaware that they can cancel the policies and often lenders or the insurance companies fail to inform them of this right.

  • A bill has been introduced in the House by Rep. James Hansen (R-Utah) which would require that mortgage companies automatically cancel private mortgage insurance when a home-owner's equity reaches 25 percent of the original purchase price.
  • Although automatic cancellation would apply only to new mortgages, current home-owners would get annual disclosure statements telling them how to cancel their insurance.
  • Hansen says he introduced the bill after he had to spend several years trying to cancel his own mortgage insurance policy.
  • While mortgage industry groups say they support the bill in principle, they are raising objections on the basis of added regulation.

Last year, more that a million home-buyers bought mortgage insurance. The buyer of a $119,000 home who puts only 5 percent down on a 30-year mortgage would pay about $70 per month for the insurance, according to the Mortgage Insurance Companies of America.

Hansen's bill has been held up in the House by what observers characterize as intense lobbying by the mortgage industry. The bill could save homeowners hundreds of dollars a year in insurance premiums.

Source: Christine Dugas, "Industry Blocks Mortgage Insurance Bill," USA Today, April 10, 1997.


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