How to Get PMI Removed From Your Mortgage

Private Mortgage Insurance (PMI) is an insurance policy that protects the mortgage lender, not the homeowner, in the event a borrower defaults on their loan. This insurance is required by lenders when a homebuyer makes a down payment less than 20% of the home’s purchase price. PMI adds an additional charge to the monthly mortgage payment, increasing the overall housing expense. Homeowners can eliminate PMI from their mortgage.

Automatic PMI Termination

Federal law provides for the automatic termination of Private Mortgage Insurance under certain conditions. Lenders must cancel PMI when the loan balance reaches 78% of the property’s original value. Original value is the lesser of the sales price or appraised value at loan origination. This termination occurs automatically when the loan reaches this 78% loan-to-value (LTV) ratio, provided payments are current.

The original loan amortization schedule dictates this termination date, assuming regular payments are made. At closing, lenders must provide disclosures including the automatic termination date for PMI. Homeowners do not need to take active steps, but monitoring their loan balance and original property value is beneficial.

Borrower-Initiated PMI Cancellation

Homeowners can request PMI cancellation, which often allows for earlier removal than automatic termination. The loan balance must reach 80% of the property’s original value (the lesser of sales price or appraised value at loan origination). This 80% loan-to-value (LTV) threshold allows earlier PMI removal than the 78% LTV for automatic termination.

Lenders typically require a consistent payment history: no 30-day late payments within the past 12 months and no 60-day late payments within the past 24 months. The property should not have subordinate liens, such as a second mortgage or a home equity line of credit (HELOC). If the property’s value has significantly appreciated, the lender may require a new appraisal. Before initiating a request, gathering information such as the current loan balance, original appraisal or sales price, and payment history is advisable.

To request PMI cancellation, the homeowner must submit a written request to their loan servicer. Upon receiving the request, the lender will review the account to verify all necessary conditions, including the loan-to-value ratio and payment history. If a new appraisal is needed to confirm the property’s current value, the lender will arrange for this, with the cost usually borne by the homeowner. The lender is required to respond to the cancellation request within a specific timeframe, often around 30 days. If approved, PMI is typically removed from the mortgage within a billing cycle.

Refinancing for PMI Removal

Refinancing a mortgage is another way for homeowners to eliminate Private Mortgage Insurance. This involves obtaining a new mortgage to pay off the existing one, replacing it with new terms. PMI is removed if the new loan’s balance is 80% or less of the home’s current appraised value. A new appraisal is standard during refinancing, establishing current market value for the new loan-to-value ratio.

Homeowners should evaluate the current interest rate environment, as a lower rate could lead to significant long-term savings. Refinancing also involves closing costs, including origination fees, appraisal fees, and title insurance. These costs, typically 2% to 5% of the loan amount, should be weighed against potential savings from eliminating PMI and interest rate reductions. Lenders require documentation of income, credit score, existing debts, and property details for the application.

Refinancing involves applying to a new or current lender, undergoing a credit check and underwriting to assess financial eligibility. The new appraisal determines the home’s current market value. Once approved, the new loan pays off the old one at closing. PMI is removed because the new mortgage is originated with an LTV of 80% or less, making PMI unnecessary.