Can I Get Rid of PMI? Yes, Here’s How

Private Mortgage Insurance (PMI) is a common feature of conventional mortgages, particularly when a homebuyer makes a down payment of less than 20% of the home’s purchase price. This insurance protects the lender against potential losses if a borrower defaults on their loan. While PMI adds to the monthly mortgage payment, it allows many individuals to achieve homeownership sooner. Understanding how PMI functions and can be removed is a significant financial consideration for homeowners.

Understanding PMI Eligibility

Not all mortgage insurance is subject to the same removal rules. Private Mortgage Insurance (PMI) on conventional loans, specifically Borrower-Paid PMI (BPMI), is generally removable under the Homeowners Protection Act (HPA) of 1998. BPMI is typically paid monthly by the borrower. In contrast, Lender-Paid PMI (LPMI) is not directly cancellable because its cost is integrated into a slightly higher interest rate.

Government-backed loans, such as those from the Federal Housing Administration (FHA), have Mortgage Insurance Premium (MIP). MIP has distinct removal rules, often stricter than for conventional PMI. For many FHA loans originated after June 3, 2013, MIP may be required for the entire loan life unless the borrower refinances into a conventional mortgage.

PMI removal for eligible conventional loans depends on the loan-to-value (LTV) ratio, payment history, and loan seasoning. The LTV ratio compares the loan amount to the home’s value, indicating the percentage of the home’s value financed. A lower LTV signifies more equity, crucial for PMI removal. Maintaining a good payment history, typically no 30-day late payments in the last 12 months or no 60-day late payments in the last 24 months, is consistently required. Some lenders may also require a minimum loan “seasoning” period before considering a cancellation request.

Automatic PMI Termination

The Homeowners Protection Act (HPA) of 1998 established clear guidelines for automatic PMI termination on conventional loans. This federal law mandates lenders must automatically cancel PMI once the principal balance is scheduled to reach 78% of the original value of the home. This calculation is based on the initial amortization schedule, not extra payments made by the borrower.

For automatic termination, the borrower must be current on mortgage payments on the scheduled date. If not current, PMI terminates on the first day of the month after they become current. The HPA also provides a final termination point: PMI must cease when the loan reaches the midpoint of its amortization period, even if the 78% LTV is not yet achieved. For example, a 30-year loan sees PMI terminate at the 15-year mark if the borrower is current.

Borrower-Initiated PMI Cancellation

Homeowners can proactively request PMI cancellation once they meet specific eligibility criteria. Borrowers typically have the right to request cancellation when their loan-to-value (LTV) ratio reaches 80% of the property’s original value. The “original value” is generally the lesser of the contract sales price or appraised value at purchase, or the appraised value at refinancing.

An important aspect is using the home’s current appraised value if property appreciation occurred. If the home’s value increased significantly, borrowers might reach the 80% LTV threshold sooner. Payment history requirements apply: generally, no 30-day late payments in the last 12 months and no 60-day late payments in the last 24 months. Some lenders may also impose a loan seasoning requirement, such as two years, before accepting a request.

To begin, contact your mortgage servicer to understand their specific requirements. A written request is typically required. The servicer will usually require a new appraisal to verify current market value and calculate the updated LTV. The borrower is generally responsible for the appraisal cost. After reviewing the appraisal and payment history, the servicer will decide on the PMI cancellation.

Alternative Strategies for PMI Removal

Beyond standard automatic termination and borrower-initiated cancellation, several strategies can help eliminate PMI. Refinancing the mortgage is common. By refinancing into a new loan with an LTV of 80% or less, based on a new appraisal, PMI can be avoided. However, homeowners must consider the associated closing costs and fees of refinancing.

Making significant home improvements can also contribute to PMI removal. Renovations that enhance property value can lower the LTV ratio by increasing the home’s appraised value. This accelerated equity increase can enable reaching the 80% LTV threshold sooner. Evaluate if improvement costs are justified by potential PMI savings and overall home value increase.

Another direct approach is to accelerate payments towards the loan principal. Making extra principal payments reduces the outstanding loan balance faster. This strategy helps reach the desired LTV ratio for both automatic and borrower-initiated PMI cancellation. Consistent additional payments can significantly impact the loan’s amortization, leading to earlier PMI removal.