A new concept in private mortgage insurance coverage for cash-short home buyers tackles an issue even Congress found troublesome: Mandatory cancellation of monthly premium payments at a date-certain, fixed in advance.

Under 1998 federal legislation, most low-downpayment home buyers with private mortgage insurance (MI) receive "automatic" termination of premium payments when their loan balance declines to 78 percent of the value of the house they purchased. That can occur on a 30-year mortgage anywhere from 8 to 12 years after closing, depending on the loan terms.

Home buyers also can request cancellation by their lender or servicer when their loan balance hits 80 percent of the original value (20 percent equity stake) as the result of appreciation, principal paydown or improvements. But home buyers typically have no idea or assurance in advance when that event might occur. Worse yet, they normally are required to pay for an appraisal by an appraiser chosen by their lender, and have no assurance that the appraiser's value will be high enough to permit cancellation of premiums.

Now one of the country's private MI companies has come up with a plan that essentially guarantees eligible borrowers a date-certain for cancellation -- without appraisal expense and without applications to lenders. Under Radian Guaranty's new "Free after Five" option, home buyers stop all private MI premium payments after the 60th month of the loan term -- five years.

To be eligible, borrowers need to maintain an on-time payment history for the initial 60 months, and must have a good but not outstanding household credit profile -- a minimum 660 FICO credit score. They must also agree to pay slightly higher monthly premiums during the first five years. For example, on a $200,000 house purchased with a 30-year fixed rate, 10 percent downpayment loan at 6 percent, buyers would pay an extra $7 to $8 a month higher premiums for the five-year program than they would using standard Radian coverage on the same loan. The premium add-on is 5 basis points.

The introduction of the Free after Five concept is likely to spawn competing fixed-date cancellation programs from other mortgage insurance underwriters. That, in turn, should add new loan options for low-downpayment buyers at most major lenders. Private mortgage insurance is generally a requirement for any loan on which the buyer makes less than a 20 percent downpayment. The coverage typically costs anywhere from $50 to $150 a month, and gets tacked onto the basic monthly mortgage bill.

Private MI premiums currently are paid by over 5 million homeowners, many of them first time purchasers who did not have enough cash up front to handle both a 20 percent downpayment and the closing costs. Though Private MI makes home buying possible for large numbers of households, consumer groups have criticized certain features of the coverage -- especially the long wait that is often necessary from loan closing to cancellation of premium payments.

Radian has added an interesting twist to its date-certain idea: Though the homeowner stops paying premiums after the 60th month, Radian continues its coverage of the lender against default losses until the automatic cancellation date -- 78 percent loan-to-value -- or the home is sold or the mortgage paid off. Lenders get standard coverage as long as 8 to 12 years.