The Homeowners Protection Act of 1998, which went into effect July 29, 1999, and applies to all loans entered into after that date, requires the automatic cancellation of PMI once homeowners accumulate 22 percent equity. In addition, homeowners can request in writing to cancel their PMI when equity reaches 20 percent.

Those required equity levels are based on the original loan value, not on changing value over time, according to the National Association of Realtors, which championed the legislation.

Private mortgage insurance is used to insure conventionally financed mortgages when buyers make a down payment of less than 20 percent. (With FHA and VA mortgages, private mortgage insurance is not required.)

PMI is paid by the buyer to encourage lenders to take the risk of loaning money to consumers who have small down payments. If a homeowner defaults on the loan, this insurance protects the loss of the lender.

Under the new law, all mortgage lenders-regardless of when the home loans originated-must annually disclose to homeowners who to contact within the Mortgage Company regarding their PMI.

The Realtor organization pushed for enactment for this law because, for families with new or refinanced mortgages, it will automatically lower their monthly mortgage payment once they achieve 20 percent equity.

For Texans with home loans written before July 30, 1999, the new law should serve to remind them about their private mortgage insurance and that they can request, once they’ve reached 20 percent equity, to have PMI removed. Depending on the size of the mortgage, the monthly savings can range anywhere from $45 to $100 or more.

Homeowners who are currently paying PMI premiums on their monthly mortgage statement should contact their lender if equity is 20 percent or more of the original purchase price.