How to Cancel Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) is a type of mortgage insurance typically required with a conventional loan when the borrower provides a down payment of less than 20% of the home’s value. This insurance protects the lender against potential financial loss if the borrower defaults on the mortgage. While PMI adds to the monthly mortgage payment, it is important to understand that it safeguards the lender, not the homeowner. Many homeowners are unaware that this additional expense is not a permanent fixture of their mortgage, and it can often be canceled under certain conditions. This article will guide you through the process of understanding and canceling Private Mortgage Insurance.

Understanding PMI Cancellation Eligibility

The ability to cancel Private Mortgage Insurance largely depends on the type of loan and specific criteria outlined by federal law and individual lenders. For conventional loans, the Homeowners Protection Act (HPA) of 1998, also known as the PMI Cancellation Act, establishes the primary rules for removal. This act applies to residential mortgage transactions consummated after July 29, 1999, involving a single-family primary residence.

Under the HPA, PMI is automatically terminated when the loan balance reaches 78% of the original value of the property, provided the loan is current. The mortgage servicer is legally required to end PMI payments at this threshold without a request from the homeowner.

Homeowners can also proactively request cancellation of PMI once their loan balance reaches 80% of the original value of the home. This borrower-initiated cancellation requires the homeowner to be current on their mortgage payments and have a good payment history. A good payment history typically means no payments were 30 days or more past due within the last 12 months, and no payments were 60 days or more past due within the last 24 months. Lenders may also require certification that there are no subordinate liens, such as a second mortgage or home equity loan, on the property.

The “original value” for cancellation purposes is generally defined as the lesser of the sales price or the appraised value at the time the loan was originated. If the loan was a refinance, the original value is the appraised value at the time of refinancing. While PMI is primarily associated with conventional loans, government-backed loans like those insured by the Federal Housing Administration (FHA) have different rules for their Mortgage Insurance Premium (MIP). For FHA loans originated after June 3, 2013, MIP generally cannot be canceled unless the loan is refinanced into a conventional loan, or if the down payment was at least 10%, it may cancel after 11 years. The HPA does not apply to FHA or VA loans, which have their own specific insurance cancellation guidelines.

Beyond federal regulations, some lenders may have additional criteria for PMI cancellation, such as a minimum seasoning period for the loan, meaning a certain amount of time must have passed since the loan was originated. This can vary, with some lenders requiring two to five years before allowing cancellation based on current property value, especially if the LTV is between 75% and 80%.

Preparing for Your PMI Cancellation Request

Before initiating a Private Mortgage Insurance cancellation request, gathering and organizing specific loan and property information is an important step. Begin by locating essential details about your mortgage, including your loan number, the original loan amount, and the original appraised value of your home at the time of closing. This information can typically be found on your initial loan documents, such as the closing disclosure, or on recent mortgage statements. Understanding these figures is fundamental to calculating your current loan-to-value (LTV) ratio.

Verifying your payment history is another crucial preparatory step. Lenders require a good payment history for borrower-initiated PMI cancellation. Reviewing your past mortgage statements or requesting a payment history from your servicer will help ensure you meet these criteria.

If you are seeking cancellation based on reaching 80% LTV using the original property value, this value is fixed. However, if you believe your home’s value has increased significantly due to market appreciation or substantial home improvements, you might be able to cancel PMI earlier based on the current market value. In such cases, your lender will typically require a new appraisal from a lender-approved appraiser to verify the updated value. The homeowner is usually responsible for the cost of this appraisal, which can range from $400 to $800, depending on the property’s size and location.

It is important to note that if a new appraisal is needed, the lender will arrange for it, and you should not order one independently. Additionally, be prepared to certify that there are no subordinate liens, such as a second mortgage or home equity line of credit, on the property, as this is a common requirement for PMI cancellation.

Initiating and Completing the Cancellation Process

Once you have thoroughly prepared by gathering all necessary loan and property information, the next step is to formally initiate the Private Mortgage Insurance cancellation process with your mortgage servicer. Begin by contacting their customer service department. Clearly state your intention to request PMI cancellation and inquire about their specific procedures and any required forms or documentation.

Many servicers will require a written request for PMI cancellation. This formal letter should include your mortgage loan number, the date, and the signatures of all borrowers listed on the loan. You will need to submit this written request along with any supporting documentation you prepared, such as proof of your good payment history.

If your cancellation request relies on an increase in your home’s current market value, the lender will likely require a new appraisal. The servicer will facilitate ordering this appraisal from an approved third party, and you will typically be responsible for the associated fee, which can range from $400 to $800. An appraiser will then schedule a visit to your property to assess its value, and this valuation will be sent directly to the lender.

After receiving your request and any necessary documentation or appraisal reports, the mortgage servicer will review your eligibility. Federal law generally requires servicers to make a determination within 30 days of receiving a complete request. They will then communicate their decision to you. If the request is approved, the PMI charges will be removed from your monthly payments, and you should see this reflected on your subsequent mortgage statements.

If your request is denied, the servicer is required to provide a written explanation of the grounds for the denial. This explanation should detail why you did not meet the cancellation criteria and, if an appraisal was a factor, include the results of that appraisal. In such cases, you should review the denial reasons carefully and consider addressing any issues, such as making additional principal payments or waiting for further home appreciation, before reapplying.