Can PMI Be Removed if Home Value Increases? Here’s What to Know

Private mortgage insurance (PMI) is an added cost for homeowners who put down less than 20% when purchasing a home. While it protects lenders, it can be a financial burden for borrowers. The good news is that if your home’s value has increased significantly, you may be able to remove PMI sooner than expected.

Understanding the PMI removal process can help you save money. Lenders have specific requirements, so knowing what they look for before submitting a request improves your chances of approval.

Determining Your Property’s Increased Value

Lenders require proof that your home has appreciated before considering PMI removal. A professional appraisal provides an unbiased estimate of market value. Many lenders require borrowers to use an appraiser from their approved list, with costs typically ranging from $300 to $600.

A comparative market analysis (CMA) from a real estate agent can offer insight into your home’s value by examining recent sales of similar properties. While not a substitute for an appraisal, a CMA can help determine whether your home has appreciated enough to justify requesting PMI removal. If prices in your neighborhood have risen due to high demand, your property may have gained value faster than expected.

Home improvements can also increase value, but not all renovations have the same impact. Kitchen and bathroom remodels, energy-efficient upgrades, and adding livable square footage tend to yield the highest return. Lenders may require receipts and permits to verify the impact of these upgrades.

Calculating the New Loan-to-Value Ratio

Once you have an updated estimate of your home’s value, the next step is determining how this affects your loan-to-value (LTV) ratio. PMI is typically required when the LTV exceeds 80%. To calculate your new LTV, divide your current mortgage balance by the appraised value of your home, then multiply by 100.

For example, if your remaining loan balance is $200,000 and your home is now valued at $275,000, your LTV would be approximately 72.7%. A lower LTV strengthens your case for PMI removal, but lender requirements vary. Some may require an LTV of 75% or lower if you’ve owned the home for less than two years, while others adhere to the 80% threshold. Checking your mortgage agreement or contacting your loan servicer clarifies your specific requirement.

Equity accumulation through regular payments also plays a role. Making additional principal payments can help you reach the necessary threshold sooner. Some borrowers choose lump-sum payments to accelerate PMI removal, but it’s important to confirm with the lender whether this approach is allowed.

Submitting Your Removal Request

Once your home’s appreciation has lowered your LTV to the required threshold, the next step is formally requesting PMI removal. This typically involves submitting a written request, as most lenders do not automatically cancel PMI based on home value increases. Each mortgage provider has its own procedure, so reviewing your loan agreement or contacting customer service ensures you have the necessary documentation.

Lenders generally require proof that the home remains in good condition, which may involve an inspection or certification stating there are no structural issues or maintenance concerns. If the property’s condition has deteriorated, PMI removal may be denied despite a favorable LTV. Ensuring necessary repairs are completed beforehand can prevent delays.

Processing times vary, but borrowers should expect a response within a few weeks. If approved, PMI charges should be removed from the next mortgage statement. If denied, the lender must provide a reason, and homeowners may have the option to appeal or reapply after addressing deficiencies.

Meeting Payment History Requirements

Lenders assess a borrower’s payment history before approving PMI removal. Most mortgage agreements require on-time payments for at least the past 12 months, though some extend this requirement to 24 months. A single late payment within this period can delay PMI cancellation. Reviewing mortgage statements ensures there are no missed or late payments that could impact eligibility.

Lenders also consider penalties such as insufficient funds fees or loan modifications due to hardship. Accounts that have been in forbearance or deferment may require additional waiting periods before PMI removal is granted. Any past-due amounts must be resolved before submitting a request.

Considering a Refinance Option

If PMI removal through a lender request is not feasible, refinancing may be an alternative. This approach can be beneficial if interest rates have dropped or if loan terms can be improved, but it requires careful evaluation of costs and potential savings. Since refinancing replaces the existing mortgage with a new one, borrowers must qualify based on credit score, debt-to-income ratio, and employment history. Closing costs, which typically range from 2% to 5% of the loan amount, should also be factored in.

Beyond eliminating PMI, refinancing can provide opportunities to secure a lower interest rate or switch to a different loan type. Homeowners with an FHA loan, which requires mortgage insurance regardless of equity, may benefit from refinancing into a conventional loan once they reach 20% equity. However, if the new loan extends the repayment period or increases the interest rate, long-term costs may outweigh the short-term savings. Running a break-even analysis—comparing refinancing costs against monthly savings—helps determine whether this option makes financial sense.