Does PMI Ever Go Away? How to Cancel Your PMI

Private Mortgage Insurance (PMI) protects mortgage lenders, not homeowners. Lenders generally require PMI when a borrower obtains a conventional mortgage with less than a 20% down payment. This requirement exists because a smaller down payment indicates a higher loan-to-value (LTV) ratio, increasing risk for the lender if the borrower defaults. PMI offsets this risk by covering a portion of the outstanding loan balance if the borrower cannot make payments and the property goes into foreclosure.

PMI is typically paid as a monthly premium added to the mortgage payment. While an additional cost, PMI enables individuals to purchase a home sooner. Understanding how PMI can be removed is important for homeowners aiming to reduce monthly housing expenses. This article explains how PMI can terminate, either automatically or through a borrower’s proactive request.

Automatic PMI Termination

The Homeowners Protection Act (HPA) of 1998 establishes conditions for automatic Private Mortgage Insurance (PMI) termination on conventional loans. These rules provide a clear path for PMI removal without borrower initiation. The HPA mandates termination based on the loan’s original terms and scheduled amortization, not current market value fluctuations.

PMI automatically terminates when the loan-to-value (LTV) ratio reaches 80% of the home’s original appraised value or sales price, whichever was less, based on the initial amortization schedule. Lenders calculate this point using the original loan amount and scheduled principal payments. As the borrower makes payments, the principal balance decreases, reaching the 80% LTV threshold for automatic cancellation.

A stricter termination point occurs when the LTV ratio reaches 78% of the original appraised value or sales price, whichever was less. The lender is legally required to cancel PMI at this point, even if the borrower is not entirely current on payments. This 78% rule provides an absolute ceiling for how long a borrower must pay PMI under the HPA.

The HPA also includes a “midpoint” rule for automatic PMI termination. PMI must terminate at the midpoint of the loan’s amortization schedule, regardless of the actual LTV ratio. For example, on a 30-year mortgage, PMI ceases after 15 years. This termination is contingent on the borrower being current on their mortgage payments at that midpoint.

Borrower-Requested PMI Cancellation

Homeowners can request Private Mortgage Insurance (PMI) cancellation before it automatically terminates, provided they meet certain criteria. This allows borrowers to remove PMI sooner if their home’s value has increased or they have made additional principal payments. This differs from automatic termination and requires borrower initiation with the loan servicer.

A primary requirement for borrower-requested cancellation is achieving at least 20% equity in the home, meaning an LTV of 80% or less. This equity calculation is typically based on the home’s current market value, often requiring a new appraisal ordered by the lender and paid for by the borrower. The appraisal confirms the home’s value supports the required equity percentage.

Borrowers must also show a consistent payment history. Lenders require no 30-day late payments in the past 12 months and no 60-day late payments in the past 24 months. The mortgage account must be current at the time of the request. The property should also be free of junior liens, like second mortgages or home equity lines of credit, as these impact the lender’s risk.

To request cancellation, the homeowner should contact their loan servicer to inquire about requirements and the process. The servicer provides instructions, often including a written request and arranging for an appraisal. Once conditions are met, the lender removes PMI from the monthly mortgage payment.

PMI Rules for FHA Loans

Mortgage insurance rules for Federal Housing Administration (FHA) loans differ significantly from conventional loans and are not governed by the Homeowners Protection Act (HPA). FHA loans include a Mortgage Insurance Premium (MIP), with distinct payment and removal requirements. This distinction is important, as FHA MIP often remains for a longer duration than conventional PMI.

For most FHA loans originated on or after June 3, 2013, the Mortgage Insurance Premium lasts for the entire life of the loan. Unless the borrower refinances into a conventional mortgage or sells the home, they will continue to pay MIP for the loan’s duration. This rule applies regardless of LTV or equity built.

For FHA loans originated before June 3, 2013, or with a low original LTV, different rules may apply. Historically, some FHA loans allowed MIP termination after 11 years if the original LTV was below a certain threshold, such as 90%. However, this condition is less common for recent FHA loan originations.

Automatic and borrower-requested cancellation provisions for conventional PMI, as outlined by the HPA, do not apply to FHA MIP. FHA mortgage insurance protects the FHA itself, insuring the lender against losses and allowing lenders to offer loans with lower down payments and more flexible credit requirements. This structure dictates the longer-lasting nature of FHA MIP.