How to Get Out of Mortgage Insurance

Mortgage insurance protects lenders from financial risk when borrowers make smaller down payments. This insurance, such as Private Mortgage Insurance (PMI) for conventional loans and Mortgage Insurance Premium (MIP) for FHA loans, allows individuals to secure financing with less than a 20% down payment. While borrowers pay the premiums, the lender is the primary beneficiary, safeguarded against losses if the borrower defaults. Eliminating this ongoing expense can lead to significant savings over a mortgage’s life.

Canceling Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) applies to conventional loans when the borrower’s initial equity is less than 20% of the property’s value. This insurance can be removed through automatic termination or borrower-initiated cancellation. Both pathways are governed by the Homeowners Protection Act (HPA) of 1998, which established uniform procedures for ending PMI.

Automatic termination of PMI occurs when the loan balance is scheduled to reach 78% of the property’s original value, based on the initial amortization schedule. For automatic cancellation, the borrower must be current on payments; otherwise, termination is delayed. PMI must also terminate by the first day of the month after the midpoint of the loan’s amortization period, provided the borrower is current, even if the 78% loan-to-value (LTV) threshold has not been met.

Homeowners can proactively request PMI cancellation once their loan balance reaches 80% of the home’s original value. Original value refers to the lesser of the contract sales price or appraised value at purchase or refinancing. To initiate this, the borrower must submit a written request to their mortgage servicer. A good payment history is required, meaning no payments 30 days or more late in the past 12 months, and no payments 60 days or more late in the previous 24 months.

Lenders may require certification that there are no junior liens on the property. They might also ask for a new appraisal to confirm the property’s value has not declined, as a decrease could prevent cancellation. While some servicers may accept a broker price opinion or automated valuation, a formal appraisal may be necessary to prove increased equity due to market appreciation or home improvements.

Removing FHA Mortgage Insurance Premium (MIP)

Mortgage Insurance Premium (MIP) is required for all FHA-insured loans, differing from PMI in its application and removal rules. FHA loans include both an Upfront Mortgage Insurance Premium (UFMIP) and an Annual Mortgage Insurance Premium (Annual MIP). The UFMIP is a one-time fee, typically 1.75% of the loan amount in 2025, paid at closing or financed into the loan, and is not removed. Annual MIP is paid monthly and has distinct rules for its removal.

The ability to remove Annual MIP depends on the loan’s origination date and initial loan-to-value (LTV) ratio. For FHA loans originated after June 3, 2013, Annual MIP is generally required for the entire life of the loan. An exception allows removal after 11 years if the borrower made an original down payment of 10% or more. For many FHA borrowers, direct MIP removal is not an option without refinancing.

For FHA loans originated between January 2001 and June 3, 2013, Annual MIP is typically canceled once the loan reaches a 78% LTV ratio. However, for loans originated between July 1991 and December 2000, MIP generally cannot be canceled and must be paid for the life of the loan. Unlike PMI, home equity value does not directly affect FHA MIP removal, and reaching 20% equity does not automatically lead to cancellation.

Using Refinancing to Eliminate Mortgage Insurance

Refinancing offers a proactive strategy for eliminating both Private Mortgage Insurance (PMI) and Mortgage Insurance Premium (MIP). This process involves obtaining a new mortgage to replace the existing one, often with more favorable terms or to remove mortgage insurance. A refinance can effectively remove mortgage insurance if the new loan’s principal balance is 80% or less of the home’s current appraised value.

The refinancing process for mortgage insurance removal begins with applying for a new loan. During this application, a new appraisal of the property is conducted to establish its current market value. If the home’s value has appreciated or enough principal has been paid down, this new appraisal can confirm the loan-to-value ratio is below the threshold requiring mortgage insurance. Once approved, the new loan pays off the old mortgage, and if the LTV is 80% or less, the new loan will not include mortgage insurance.

While refinancing can be an effective solution, it involves financial considerations borrowers should evaluate. Closing costs are associated with any new mortgage, ranging from a few thousand dollars to several percent of the loan amount. Borrowers must weigh these upfront costs against the ongoing savings from eliminating mortgage insurance premiums. Evaluating the new interest rate is also important, as a higher rate could offset the benefits of removing mortgage insurance. Refinancing can be advantageous if current interest rates are lower than the original loan’s rate, or if the homeowner plans to remain in the property long enough for savings to outweigh closing costs.