How to Get PMI Removed From Your Mortgage

Private Mortgage Insurance (PMI) is typically required on conventional mortgage loans when a down payment is less than 20% of the home’s purchase price. It protects the lender from losses if the borrower defaults. While PMI allows homeownership with a smaller upfront investment, it adds an ongoing cost to monthly mortgage payments. Understanding how to remove PMI can significantly reduce a homeowner’s financial obligations.

Understanding Private Mortgage Insurance

PMI is a policy protecting the mortgage lender if a borrower stops making payments. Lenders require PMI when the loan-to-value (LTV) ratio on a conventional mortgage exceeds 80%, meaning the borrower has less than 20% equity. PMI is typically a monthly premium added to the mortgage payment, though it can also be paid as an upfront premium or a combination.

Key Conditions for Removal

Borrowers must meet several conditions for PMI removal. The loan-to-value (LTV) ratio is a primary factor, calculated by dividing the outstanding loan balance by the home’s value. For borrower-initiated cancellation, an 80% LTV is generally required, while automatic termination typically occurs at 78% LTV. This value can be based on the original purchase price or a current property appraisal.

A consistent payment history is also essential. Lenders often require no payments more than 30 days late in the past 12 months, and no payments more than 60 days late within the last 24 months. The home’s current market value is significant, especially if appreciation helps achieve the necessary equity; an appraisal may be required. Some lenders also impose a “loan seasoning” requirement, meaning a minimum period, such as two years, must pass before a borrower can request cancellation.

Automatic PMI Termination

The Homeowners Protection Act (HPA) of 1998 provides homeowners with specific rights regarding PMI termination. This law mandates that lenders automatically terminate PMI for eligible conventional loans once certain conditions are met. One primary trigger occurs when the mortgage loan balance is scheduled to reach 78% of the property’s original value. This termination is based on the loan’s original amortization schedule, provided the borrower is current on payments.

A second trigger applies even if the 78% LTV threshold has not been reached. If the loan reaches the midpoint of its amortization period, such as 15 years for a 30-year mortgage, the lender must terminate PMI. This termination is contingent on the borrower being current on their mortgage payments.

Borrower-Initiated PMI Cancellation

Homeowners can proactively request PMI cancellation sooner than the automatic termination date. This is possible once the loan balance reaches 80% of the home’s original value or its current appraised value. To start, contact your loan servicer, usually with a written request. The servicer will review the request and verify eligibility criteria, including a good payment history and no subordinate liens.

The servicer may require a new appraisal to confirm the property’s current market value, especially if the request is based on appreciation. The borrower typically pays for this appraisal, which can range from $400 to $700. After documentation is submitted, the servicer will decide on the PMI cancellation. If approved, the PMI charge will be removed from subsequent mortgage payments.

Refinancing as a Removal Strategy

Refinancing offers another method for eliminating Private Mortgage Insurance. This involves obtaining a new mortgage loan to pay off the existing one, potentially with new terms and interest rates. PMI can be removed if the new loan’s loan-to-value (LTV) ratio is 80% or less, based on a new appraisal. This strategy is effective if the home’s value has increased significantly or if the borrower has paid down substantial principal.

The refinancing process includes applying for the new loan, credit checks, and a new property appraisal. Refinancing incurs closing costs, which can include various fees and often range from 2% to 5% of the new loan amount. While refinancing can lead to lower monthly payments by removing PMI and potentially securing a lower interest rate, consider these savings against the upfront closing costs.