Can I Remove PMI From My Mortgage?

Private Mortgage Insurance (PMI) is typically required when a homebuyer secures a conventional mortgage with a down payment less than 20% of the home’s purchase price. This insurance protects the lender from potential financial losses if the borrower defaults on the loan. While the borrower pays for PMI, it does not provide direct protection to the homeowner.

PMI costs are added to the monthly mortgage payment, typically ranging from 0.46% to 1.50% of the original loan amount annually. For instance, on a $350,000 mortgage, this could translate to an additional $105 to $245 per month. Homeowners often seek to remove PMI to reduce their monthly housing expenses, as it represents an ongoing charge that does not contribute to their home equity.

Conditions for PMI Removal

The ability to remove Private Mortgage Insurance (PMI) is governed by specific criteria, primarily outlined by the Homeowners Protection Act (HPA) of 1998. This act distinguishes between automatic termination and borrower-initiated cancellation. Automatic termination occurs when the loan-to-value (LTV) ratio of the mortgage reaches 78% of the home’s original value. This means that as the principal balance decreases through regular payments, PMI will eventually cease without direct action from the homeowner, provided payments are current.

Another automatic termination trigger is when the mortgage loan reaches the midpoint of its amortization schedule, regardless of the LTV ratio, assuming the borrower is current on payments. For a 30-year mortgage, this midpoint would be after 15 years. This provision is particularly relevant for loans with interest-only periods or balloon payments, where the principal balance might not decrease as rapidly in the early years.

Borrower-initiated cancellation allows homeowners to request PMI removal sooner if certain conditions are met. A key condition is reaching an 80% LTV ratio based on either the original value of the home or its current appraised value. The “original value” typically refers to the lesser of the contract sales price or the appraised value at the time of purchase, or the appraised value at the time of refinancing.

To qualify for borrower-initiated cancellation, a homeowner must also demonstrate a good payment history. This usually entails having no 30-day late payments in the last 12 months and no 60-day late payments within the last 24 months. Furthermore, the property must not have any junior liens, such as a second mortgage or a home equity line of credit.

Lenders may require a new appraisal to confirm the current home value, especially if the homeowner believes the property has appreciated significantly. This can be beneficial if the increase in value helps achieve the 80% LTV threshold sooner. The loan-to-value (LTV) ratio is calculated by dividing the current outstanding loan balance by the home’s value. For example, a home valued at $300,000 with a $240,000 outstanding mortgage balance would have an 80% LTV ($240,000 / $300,000).

Gathering Information for PMI Removal

Before formally requesting PMI removal, homeowners should review their mortgage details to confirm eligibility. Locating original loan documents, such as the promissory note and closing disclosure, can provide the home’s original appraised value or purchase price, which is crucial for LTV calculations. Recent mortgage statements show the current outstanding loan balance and provide a record of payment history.

Understanding the original amortization schedule helps track scheduled principal reduction and anticipate when automatic termination might occur. Reviewing your payment history from these statements or by requesting a detailed record from your servicer ensures you meet the good payment history requirement. This preparatory step helps identify any potential issues that could delay or prevent PMI cancellation.

Assessing the current market value of the home is important, particularly if property values in the area have risen. Homeowners can use online valuation tools or research recent comparable sales in their neighborhood to estimate their home’s value. If this informal assessment suggests significant appreciation, a formal appraisal might be a worthwhile investment to establish a new, higher LTV denominator.

Contacting the loan servicer informally allows homeowners to inquire about their specific PMI cancellation policies without initiating a formal request. This conversation can clarify any unique requirements, such as specific forms needed, their preferred method for requesting an appraisal, or precise payment history criteria they enforce.

Initiating the PMI Removal Process

Once a homeowner has gathered necessary information and determined eligibility, the next step is formally initiating the process with the loan servicer. This typically begins with a written request, though some may offer online portals or dedicated phone lines for this purpose. A written request provides a clear record of the communication and the date of the request. Homeowners will need to submit supporting documents, including a completed servicer-specific form, a formal letter stating the request for PMI cancellation, and potentially an appraisal report if the request is based on the current appreciated value of the home. Proof of no junior liens on the property might also be required.

Upon receiving the request and documentation, the servicer will review the submission to verify eligibility. The timeline for this review and decision can vary, but typically falls within a few weeks to a month. Homeowners should be prepared for potential costs associated with the process, primarily if a new appraisal is required, which is generally paid by the homeowner and can range from a few hundred dollars to $500 to $700.

If the request for PMI removal is approved, PMI will be removed from the mortgage payment, and the homeowner will see a reduction in their monthly obligation. The servicer will inform the homeowner of the effective date of this change. Should the request be denied, the servicer is obligated to provide a reason for the denial, allowing the homeowner to address any issues, such as insufficient equity, payment history concerns, or the presence of junior liens, before reapplying at a later date.