How to Get Mortgage Insurance Removed From Your Mortgage

Mortgage insurance protects lenders from losses if a borrower defaults. It is typically required when a homebuyer makes a down payment less than a certain percentage of the home’s purchase price, indicating higher risk for the lender. Understanding how to eliminate this insurance can lead to significant savings. This article guides readers through the processes for removing mortgage insurance from their home loan.

Understanding Mortgage Insurance Types and Eligibility for Removal

Private Mortgage Insurance (PMI) is associated with conventional mortgage loans when the borrower’s down payment is less than 20% of the home’s value. Lenders require PMI to mitigate the increased risk of a smaller equity stake at loan origination. Borrowers can request PMI cancellation once their mortgage loan balance reaches 80% of the home’s original appraised value or sales price, whichever is less. This eligibility requires a history of consistent and timely mortgage payments, without significant late payments.

The ability to remove PMI also depends on loan seasoning, meaning a minimum time must have passed since origination. Some lenders require a certain number of years before considering a borrower-initiated cancellation, even if the LTV threshold is met. Homeowners should consult their loan documents or servicer to understand their mortgage’s specific seasoning requirements. The property must also be free of any subordinate liens, such as a second mortgage or home equity line of credit.

Federal Housing Administration (FHA) loans require a Mortgage Insurance Premium (MIP). FHA MIP is paid in two parts: an upfront premium and an annual premium. For most FHA loans originated on or after June 3, 2013, the annual MIP is required for the entire life of the loan. Unlike PMI, the MIP on these loans does not automatically terminate once a certain LTV ratio is achieved.

An exception exists for FHA loans originated with a very low loan-to-value ratio at inception. In such cases, the annual MIP may be eligible for termination after 11 years. For many FHA borrowers, the most common way to eliminate the annual MIP is by refinancing their FHA loan into a conventional mortgage. This strategy allows the borrower to switch to a loan type where mortgage insurance rules are more flexible and eventual removal is possible.

Lender-Paid Mortgage Insurance (LPMI) functions distinctly from both PMI and FHA MIP. With LPMI, the lender pays the mortgage insurance premium directly to the insurer. In exchange for covering this cost, the borrower accepts a slightly higher interest rate on their mortgage loan. This higher interest rate is integrated into the loan’s terms from the outset and does not appear as a separate line item on the monthly statement.

Because LPMI is embedded within the loan’s interest rate, it is not possible for the borrower to cancel or remove it during the life of the loan. The only way to eliminate LPMI is by refinancing the mortgage into a new loan without LPMI, or by paying off the mortgage entirely. Borrowers considering LPMI loans should weigh the benefit of not having a separate mortgage insurance payment against the long-term cost of a higher interest rate.

Steps for Borrower-Initiated Mortgage Insurance Cancellation

To begin canceling mortgage insurance, homeowners should first review their original loan documents, including the promissory note and closing disclosure. These documents contain specific details regarding the terms and conditions for mortgage insurance removal. Understanding these initial requirements is a foundational step before engaging with the loan servicer.

After reviewing the documents, the next step involves contacting the mortgage loan servicer directly. Borrowers can reach their servicer via phone, through an online portal, or by submitting a written request. When contacting the servicer, clearly state the intent to cancel mortgage insurance and provide the loan account number. The servicer will then outline their specific requirements for processing the cancellation request.

The servicer’s requirements often include demonstrating that the loan-to-value (LTV) ratio has reached the necessary threshold. They will also verify a strong payment history, requiring no 30-day late payments in the past 12 months, and no 60-day late payments in the past 24 months. Furthermore, the servicer will confirm that there are no subordinate liens on the property.

If the current market value of the home is needed to determine the LTV, the servicer will require the borrower to order a new appraisal. This appraisal must be conducted by an appraiser from the lender’s approved list to ensure impartiality and adherence to their standards. The cost of this appraisal is the responsibility of the homeowner.

Once the appraisal is complete and all other conditions are met, the homeowner must submit all required documentation to the loan servicer. This includes the appraisal report, a formal request form provided by the lender, and any other supporting paperwork the servicer specifies. Submitting a complete package helps avoid delays in the review process.

After receiving all necessary documents, the loan servicer will review the request for compliance with loan terms and applicable regulations. The timeline for this review can vary, but borrowers can expect a decision within 30 to 45 days. Upon approval, mortgage insurance payments will cease, and the monthly mortgage payment will be adjusted accordingly.

If the request for cancellation is denied, the servicer must provide a clear explanation. This explanation will detail specific reasons, such as insufficient equity, a problematic payment history, or the presence of subordinate liens. Homeowners can address these issues and reapply for cancellation once eligibility conditions are met.

Automatic Mortgage Insurance Termination

Beyond borrower-initiated requests, private mortgage insurance (PMI) can also terminate automatically under specific conditions, primarily governed by the Homeowners Protection Act (HPA). This federal law ensures PMI is removed once certain equity thresholds are met, even if the borrower does not actively request cancellation. The HPA outlines two primary scenarios for automatic termination.

The first scenario for automatic termination occurs when the loan balance is scheduled to reach 78% of the property’s original value. This calculation is based on the initial amortization schedule, assuming the borrower makes all payments as planned. This termination point is predetermined at loan origination and will occur on the scheduled date, regardless of any additional principal payments.

The second scenario for automatic termination applies when the loan balance actually reaches 78% of the property’s original value due to additional principal payments. If a borrower makes extra payments towards their principal, they can reach the 78% LTV threshold sooner than originally scheduled. In this case, PMI will terminate once that actual balance is achieved.

For automatic termination under the HPA, borrowers must maintain a good payment history. The law requires no payment 60 days or more past due within the 12 months preceding the termination date. Additionally, the borrower must not have had a payment 30 days or more past due within the 24 months preceding the termination date.

Lenders are generally required to notify borrowers annually about their right to cancel PMI and the process for automatic termination. Once the loan reaches the designated 78% LTV threshold, the servicer is obligated to automatically terminate the PMI. This automatic termination provides a benefit for borrowers who may not be aware of their eligibility or the process for requesting cancellation.