Does PMI Come Off Automatically and How Can You Remove It?

Private Mortgage Insurance (PMI) is a specialized insurance policy that protects the lender, not the homeowner, in the event a borrower defaults on a mortgage. Lenders typically require PMI when a homebuyer makes a down payment of less than 20% of the home’s purchase price. This insurance helps lenders mitigate the increased risk associated with loans that have a higher loan-to-value (LTV) ratio. While PMI adds to the monthly mortgage payment, it enables many individuals to achieve homeownership sooner than if they waited to save a larger down payment.

Automatic PMI Removal

The Homeowners Protection Act (HPA) of 1998 established federal guidelines for the automatic termination of Private Mortgage Insurance for most conventional loans. This act applies to privately insured first mortgages on single-family primary residences. The HPA mandates that lenders automatically cancel PMI when the loan balance is scheduled to reach 78% of the home’s original value. The “original value” is generally defined as the lesser of the home’s sales price or its appraised value at the time the loan was consummated.

For this automatic cancellation to occur, the borrower must be current on their mortgage payments. If a borrower is not current on the scheduled termination date, the PMI will be automatically terminated on the first day of the month after the mortgage becomes current. This automatic termination is based on the original amortization schedule of the loan.

The HPA also includes a “final termination” provision, requiring lenders to cancel PMI by the first day of the month immediately following the midpoint of the loan’s amortization period. This applies even if the 78% LTV threshold has not yet been reached, provided the borrower is current on payments. However, the HPA does not cover all loans; exceptions include FHA loans, VA loans, and certain high-risk mortgages.

Borrower-Initiated PMI Removal

While automatic removal is mandated by law, homeowners can often request PMI cancellation earlier than the scheduled automatic termination date. Borrowers typically have the right to request PMI cancellation once their loan balance reaches 80% of the home’s original value. The “original value” for this purpose is the lesser of the sales price or the appraised value at the time of purchase, or the appraised value at the time of a refinance.

To initiate this process, the borrower must submit a written request to their mortgage servicer. Lenders generally require a good payment history, which means no payments 30 days or more past due in the last 12 months, and no payments 60 days or more past due in the previous 24 months. Additionally, the property should not have any junior liens, such as a second mortgage or home equity loan, that would impact the lender’s security.

If the borrower is relying on an increase in the home’s value due to market appreciation or significant improvements, the lender may require a new appraisal to verify the current property value. This appraisal is typically conducted at the homeowner’s expense. If the appraisal shows that the property’s value has declined, or if the LTV based on the current value does not meet the 80% threshold, the lender may deny the request.

Factors Affecting PMI Removal

Several circumstances can complicate or delay the removal of Private Mortgage Insurance, impacting both automatic and borrower-initiated cancellations. Loan modifications, for instance, can reset or alter the amortization schedule, which in turn affects when the loan balance is projected to reach the necessary loan-to-value (LTV) thresholds. If a modification increases the outstanding loan balance, it can cause the LTV ratio to rise, potentially extending the period for which PMI is required.

A consistent history of on-time payments is a fundamental requirement for PMI removal. Late or missed mortgage payments can prevent both automatic termination and borrower-initiated cancellation, even if the equity thresholds are met. In such cases, PMI will not be removed until the borrower brings their account current and maintains a good payment history for a specified period.

The presence of additional liens on the property, such as a second mortgage or a home equity line of credit, can also pose challenges. Lenders often require the property to be free of such encumbrances before approving a PMI cancellation request, as these liens can reduce the lender’s equity position in the event of default. Furthermore, a decline in the home’s market value can make it more difficult to achieve the required 80% LTV for borrower-initiated removal, especially if relying on current appraised value. While automatic termination based on original value is generally unaffected by value decline, a lower current value can hinder early cancellation.

Finding Your Loan’s PMI Information

Homeowners can review their original loan documents, such as the Loan Estimate and the Closing Disclosure, which outline the initial PMI terms and conditions. Mortgage servicers are required to send annual PMI disclosure statements to borrowers. These statements include information regarding your rights to PMI cancellation and termination, and may provide an estimated date when your PMI is scheduled to be removed. They also include contact information for your loan servicer.

For personalized information, directly contacting your loan servicer is recommended. You can inquire about your current loan balance, the original value used for PMI calculations, and the specific requirements for cancellation on your particular loan. Servicers are obligated to provide this information upon request.