Do You Get PMI Back? How to Cancel Your Payments

Private Mortgage Insurance, known as PMI, is a specific type of insurance often required for conventional mortgage loans when a borrower makes a down payment of less than 20% of the home’s purchase price. This insurance serves to protect the lender in the event a borrower defaults on their mortgage payments. While the borrower is responsible for paying the PMI premiums, the coverage benefits the financial institution extending the loan, reducing their risk exposure. PMI enables individuals to purchase a home sooner without having to save for a larger down payment.

Can You Get Past PMI Payments Back

Generally, past Private Mortgage Insurance (PMI) payments are not refundable. These payments cover the lender’s risk for the period they were collected, functioning much like an ongoing service fee. Each monthly premium compensates for that specific month’s risk by covering the lender against potential losses.

In extremely rare circumstances, a refund for past PMI payments might occur due to administrative error or miscalculation. This would require a thorough audit and direct communication with the lender. However, these are isolated incidents, and most homeowners will not recover previously paid PMI amounts.

Methods to Remove PMI

While past PMI payments are generally non-refundable, homeowners can take steps to stop paying future premiums. These methods involve demonstrating sufficient home equity, which reduces the lender’s risk.

One common way PMI is eliminated is through automatic termination under the Homeowners Protection Act of 1998 (HPA). This federal law mandates that lenders automatically cancel PMI once the loan-to-value (LTV) ratio reaches 78% of the original home value, provided the loan is current. The original value is the lesser of the sales price or appraised value at loan origination.

This automatic termination is scheduled according to the initial amortization schedule. If the loan is not current on the scheduled date, termination occurs on the first day of the first month after the borrower becomes current. Once PMI is terminated, the servicer must return any unearned premiums within 45 days.

Homeowners can also request an earlier cancellation of PMI, known as borrower-initiated cancellation. This is typically possible once the loan’s LTV ratio reaches 80% of the original home value. A written request to the mortgage servicer is required.

To qualify, lenders usually require a consistent payment history, meaning no 30-day late payments in the past year and no 60-day late payments in the past two years. The property should also not have any junior liens. A new appraisal, at the homeowner’s expense, may be needed to confirm the property’s value has not declined.

Refinancing the existing mortgage loan is another effective strategy to eliminate PMI. If a homeowner refinances into a new loan where the loan-to-value ratio is 80% or less of the home’s current appraised value, PMI will not be required. This approach involves securing a completely new mortgage with new terms, interest rates, and associated closing costs.

Closing costs for a refinance can include appraisal fees, title insurance, and loan origination fees. It is important to weigh these upfront costs against the long-term savings from eliminating PMI.

Significant home improvements can contribute to PMI removal by increasing property value. If renovations boost market value, the loan-to-value ratio may decrease to 80% or below. A new appraisal is usually required to verify the increased value, followed by a formal request to the lender for PMI cancellation.

Distinctions from Other Mortgage Insurance Types

Private Mortgage Insurance (PMI) is distinct from other mortgage-related insurance or fees. Different loan types have their own specific insurance requirements and cancellation policies.

Federal Housing Administration (FHA) loans require a Mortgage Insurance Premium (MIP). Unlike conventional PMI, FHA MIP has different guidelines for duration and cancellation. For most FHA loans originated after June 3, 2013, MIP is typically required for the entire life of the loan, unless the initial down payment was 10% or more, allowing removal after 11 years. FHA MIP generally cannot be removed by simply building equity.

The VA Funding Fee, associated with Department of Veterans Affairs (VA) loans, is a separate charge. This is a one-time upfront fee paid at closing or financed into the loan amount, not a recurring monthly premium. It cannot be removed or refunded like PMI.

Lender-Paid PMI (LPMI) operates differently from traditional borrower-paid PMI. The lender covers the mortgage insurance cost, which is incorporated into a slightly higher interest rate. Since the cost is embedded in the interest rate, LPMI cannot be separately canceled or removed by the borrower. To reduce LPMI’s impact, a borrower would typically need to refinance for a lower interest rate.