Can I Get Rid of PMI Without Refinancing?

Private Mortgage Insurance (PMI) is a specialized type of coverage often required when securing a conventional mortgage. It primarily serves to protect the lender from financial loss if a borrower defaults on their loan, particularly when the down payment is less than 20% of the home’s purchase price. This insurance allows individuals to purchase a home with a smaller initial investment, offsetting some of the risk for the lending institution. While PMI adds to the monthly mortgage payment, it is not a permanent fixture, and homeowners can often eliminate this expense without needing to refinance their entire loan.

Understanding Automatic PMI Termination

The Homeowners Protection Act (HPA) of 1998 establishes specific conditions under which private mortgage insurance must be automatically terminated. The HPA mandates that mortgage servicers cancel PMI once the loan-to-value (LTV) ratio reaches 78% of the home’s original value.

For this automatic termination to occur, the borrower must be current on their mortgage payments. If payments are not current at the 78% LTV threshold, PMI termination will be delayed until the borrower brings the account up to date. The HPA also provides for automatic termination at the midpoint of the loan’s amortization schedule, even if the 78% LTV has not yet been reached, provided the borrower is current on payments. Servicers must notify borrowers when PMI is scheduled to terminate or has terminated.

Initiating Borrower-Requested PMI Cancellation

Homeowners can proactively request the cancellation of their PMI, often sooner than automatic termination. This process can be initiated once the loan-to-value (LTV) ratio reaches 80% of the home’s original value. The “original value” refers to the lesser of the sales price or appraised value at the time of purchase, or the appraised value if the loan was a refinance.

To qualify for borrower-requested cancellation, a good payment history is essential. Lenders typically require no 30-day late payments in the past year and no 60-day late payments in the past two years. Additionally, the lender may require certification that no junior liens, such as a second mortgage, have been placed on the property. The servicer may also need proof that the property’s value has not declined below its original value.

If a homeowner believes their property’s market value has significantly increased since the original purchase, they may be able to reach the 80% LTV threshold sooner based on this current value. In such cases, the lender will likely require a new appraisal to verify the updated home value. The cost of this appraisal is typically the borrower’s responsibility.

To begin the cancellation process, the homeowner must submit a written request to their mortgage servicer. This request should include the loan number and the basis for the cancellation request, such as reaching the 80% LTV through payments or an increase in property value. The servicer will then review the payment history, verify the LTV, potentially through an appraisal, and inform the borrower of their decision.

Mortgage Insurance on FHA Loans

Mortgage insurance on FHA loans, known as Mortgage Insurance Premium (MIP), operates under different rules than conventional PMI. FHA loans, insured by the Federal Housing Administration, require both an upfront MIP, typically 1.75% of the loan amount, and an annual MIP. The annual premium is usually divided into 12 monthly installments added to the mortgage payment.

The ability to remove FHA MIP without refinancing depends significantly on when the loan was originated and the original loan-to-value ratio. For FHA loans with case numbers issued on or after June 3, 2013, the MIP cancellation rules changed considerably. If the original loan-to-value was 90% or less, MIP can be cancelled after 11 years.

However, for FHA loans originated on or after June 3, 2013, with an original loan-to-value greater than 90%, the MIP is generally required for the entire loan term. This means that for many FHA borrowers, the only way to eliminate MIP is by refinancing into a conventional loan once sufficient equity is established. Loans originated before June 3, 2013, may have different MIP cancellation rules, often allowing for removal once a certain equity threshold, such as 22%, is reached.