How to Get PMI Removed From Your Mortgage

Private Mortgage Insurance (PMI) is a specialized type of insurance that protects mortgage lenders from financial loss if a borrower defaults on their loan. Lenders require PMI when a homebuyer makes a down payment of less than 20% of the home’s purchase price, as this scenario presents a higher risk of default. While PMI protects the lender, it is an additional cost for the borrower, usually added to the monthly mortgage payment. For many homeowners, removing this added expense is a significant financial goal, as it can reduce overall housing costs.

Automatic PMI Termination

Federal law, specifically the Homeowners Protection Act (HPA) of 1998, provides for the automatic termination of Private Mortgage Insurance under certain conditions. For most conventional loans closed on or after July 29, 1999, lenders are required to automatically cancel PMI once the loan’s principal balance is scheduled to reach 78% of the property’s original value. This calculation is based on the loan’s original amortization schedule. The homeowner must also be current on their mortgage payments for this automatic termination to occur.

Should the borrower not be current on payments on the scheduled termination date, the PMI will terminate on the first day of the month following the date they become current. The HPA also stipulates that PMI must be terminated by the midpoint of the loan’s amortization period if, by that time, the borrower is current on their payments.

Eligibility for Borrower-Initiated PMI Cancellation

Homeowners can proactively request the cancellation of Private Mortgage Insurance before it automatically terminates, provided they meet specific criteria. A primary requirement is that the loan-to-value (LTV) ratio must reach 80% of the home’s original value. The LTV ratio is calculated by dividing the current outstanding loan balance by the property’s value at the time the loan was originated.

In cases where the home’s value has increased significantly due to market appreciation or substantial improvements, a borrower may be able to cancel PMI based on the current appraised value. To determine the current value, the lender may require a new appraisal, which the borrower pays for and the servicer arranges.

Beyond the LTV requirement, a borrower must demonstrate a good payment history, with no significant late payments. The borrower must also be current on all payments at the time of the cancellation request. The property must remain owner-occupied, and there should be no junior liens that would encumber the equity.

Process for Borrower-Initiated PMI Cancellation

Once a homeowner determines they meet the eligibility criteria for early PMI cancellation, the next step involves initiating the formal request with their mortgage loan servicer. The initial step involves contacting the servicer, often with a formal written request, to express the intent to cancel PMI and confirm specific requirements.

The servicer will ask for specific information to process the cancellation, including a formal written request. They will then review the loan’s payment history to confirm it meets the “good payment history” requirements, and verify the loan’s current balance to calculate the LTV ratio. If an appraisal is necessary, the servicer will arrange it, and the borrower will bear the cost.

After receiving all necessary documentation and verifying that all conditions are met, the servicer will approve the cancellation. PMI payments cease within 30 days after the servicer receives the written request and all required conditions for cancellation are satisfied. The adjustment will be reflected in subsequent mortgage statements.

FHA Mortgage Insurance Premium Removal

Mortgage Insurance Premium (MIP) for FHA loans operates under different regulations than Private Mortgage Insurance (PMI) for conventional mortgages. Unlike conventional PMI, which often terminates automatically or can be canceled, MIP on many FHA loans originated on or after June 3, 2013, is permanent and remains for the entire life of the loan. This is particularly true if the borrower made a down payment of less than 10%.

For FHA loans originated before June 3, 2013, or those with a larger down payment (10% or more), MIP may be canceled. For loans originated before June 3, 2013, MIP can be removed once the loan-to-value (LTV) ratio reaches 78%. For loans originated on or after June 3, 2013, with a down payment of 10% or more, the annual MIP can be removed after 11 years.

For FHA loan holders whose MIP is permanent, the most common method to eliminate this ongoing cost is to refinance the FHA loan into a conventional mortgage. This strategy allows homeowners to secure a new loan that does not require MIP, provided they have accumulated sufficient equity, at least 20%, to avoid conventional PMI as well.